retirement income systems: the reform oecd countries · 2016. 7. 7. · retirement income systems:...

Organisation de Coopération et de Développement Economiques AWP 3.4 EngOrganisation for Economic Co-operation and Development

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Or. Eng.

AGEING WORKING PAPERS

Maintaining Prosperity In An Ageing Society: the OECD study on the policyimplications of ageing

WORKING PAPER AWP 3.4

RETIREMENT INCOME SYSTEMS: THE REFORMPROCESS ACROSS OECD COUNTRIES

This is one of a series of analytic papers that supported the OECD’s horizontal work on ageing. Theresults of the entire project are summarised in Maintaining Prosperity in an Ageing Society , OECD1998. Chapter V of Maintaining Prosperity—on retirement income reforms —drew on this workingpaper.

Retirement income arrangements in OECD countries are generally quite complex, with the multipletiers of provision, the rules and regulations attached to both public and private pensions and theinterplay between these tiers. This paper seeks to provide an overview of features of the public pensionsystems (separated into flat-rate and earnings-related schemes), with additional information alsoprovided of private pension and savings arrangements in selected countries. Information on the age atwhich pensions can be accessed, eligibility requirements, benefit amounts, contribution rates, and thenature of government’s financial involvement is provided in some detail..

The authors are David W Kalisch and Tetsuya Aman , Social Policy Division, OECD. This a reviseddraft (revised May 1998) of a paper presented at a joint ILO-OECD workshop on the development andreform of pension schemes, held in Paris, 15 -17 December 1997. For any queries, please contactIsabelle Vallard (OECD) at: tel: (33) 1 45 24 19 61, fax (33) 1 45 24 90 98, e-mail:[email protected].

TABLE OF CONTENTS

Summary............................................................................................................................................... 3Introduction........................................................................................................................................... 5Rationales for pension arrangements...................................................................................................... 6Features of retirement income arrangements in OECD countries............................................................ 7

Flat-rate pensions............................................................................................................................... 8Earnings-related pensions................................................................................................................... 9The level of final benefits from public pensions ................................................................................11Financing arrangements for public pensions......................................................................................11Private pension schemes....................................................................................................................13Taxation of retirement incomes .........................................................................................................14

Contemporary challenges to pension arrangements...............................................................................15Ageing of the population and financial viability of pension schemes .................................................16Are old-age pension payments a community priority? .......................................................................18The specific challenge of longevity ...................................................................................................18Labour market challenges to pension arrangements ...........................................................................19Changes to family arrangements........................................................................................................21Private wealth of older people ...........................................................................................................21

Retirement income concerns across the OECD .....................................................................................22Details of recent pension reforms across OECD countries.....................................................................23

Reductions in pension generosity ......................................................................................................24Greater adequacy of pension benefits ................................................................................................24Increased funding of public pension schemes ....................................................................................25Expanded coverage of private pension arrangements.........................................................................25Policies to change the effective age of retirement ..............................................................................26Other employment and pension linkages ...........................................................................................28Policies responding to changes in family circumstances ....................................................................29

Concluding remarks .............................................................................................................................30

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RETIREMENT INCOME SYSTEMS: THE REFORM PROCESS ACROSS OECD COUNTRIES

DAVID W KALISCH and TETSUYA AMANSocial Policy Division, OECD

Summary

1. Old-age pensions, and retirement income arrangements more generally, play a significant role inOECD economies to ensure older people have sufficient income to enjoy a sufficient standard of living inretirement. Public pension systems are maturing in many countries and in some instances are providingsignificant benefits to those entering retirement years. Poverty among those of older ages is becoming lessprevalent in the OECD, but still remains a concern for a portion of the retired population.

2. Retirement income arrangements in OECD countries are generally quite complex, with themultiple tiers of provision, the rules and regulations attached to both public and private pensions and theinterplay between these tiers. This paper seeks to provide an overview of features of the public pensionsystems (separated into flat-rate and earnings-related schemes), with additional information also providedof private pension and savings arrangements in selected countries. Information on the age at whichpensions can be accessed, eligibility requirements, benefit amounts, contribution rates, and the nature ofgovernment’s financial involvement is provided in some detail. As an overview, many public pensionsystems have statutory retirement ages of around 65 years (at least for men), most flat-rate public pensionshave residence and/or means testing criteria for benefit eligibility, most do not require contributions andthe government generally covers the full cost. By contrast, public earnings-related schemes generallyrequire contributions for at least a minimum period, with the government often responsible for someportion of the costs. In total, the replacement rates generated from these public pension schemes generallyfar exceed the ILO Convention No. 102 that public old-age pensions have a replacement rate of at least 40per cent for a couple. Private pension arrangements are being promoted in a number of OECD countries,largely to supplement public pensions, and the general features of arrangements in a number of countriesare also outlined.

3. Pension systems are facing a number of economic, demographic and social challenges. Thispaper highlights a number of these, such as the ageing of the population, the multitude of changes tolabour market and family arrangements over the last twenty or more years which are expected to continueto be factors influencing retirement income outcomes and issues, as well as noting the importance of theprivate wealth of some entering retirement.

4. At the forefront of concerns facing most OECD countries is ensuring the medium and long-termviability of public pension systems, with some countries also concerned with (the related aspect of) thelow effective retirement age in their country. Other priority areas which were noted by some countriesinclude the adequacy of pension benefits, improving the coverage of pension arrangements and improvingthe work incentives inherent in pension systems.

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5. Many OECD countries have been active in pursuing pension reform. Changes in benefit rates(including increases in the level of contributions and/or employment history required to generate the samelevel of benefits) and changes to retirement ages are among the areas where reform has been focused.Many countries are actively reducing or removing their financial incentives for early retirement, althoughthere are some exceptions. More emphasis is being placed on private pension arrangements to diversifyarrangements away from public pensions and in some cases supplement low public benefits. Somecountries have introduced or extended pension incentives to encourage people to work longer, while othershave introduced arrangements to enable workers to phase down their working as they move intoretirement. By contrast, other countries discourage old-age pensioners from working while drawing apension.

6. A common feature of pension reform is that it is often phased in over many years, with a 20 yearphase in of programme changes not unusual. For those countries where the demographic ageing peak isanticipated around 2020-30 this is satisfactory, although not all OECD countries have this window ofopportunity. Some countries have regular cycles of pension review while others have established reviewmechanisms to draw upon external expertise as well as try to build public support for reforms. Whilethere is evidence that many countries are responding to challenges which have been identified to date,countries also need to be alert to new and emerging challenges to their retirement income arrangements.

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Introduction

7. All OECD countries, as well as many other countries, have institutional arrangements in place toprovide income for older people in their later years. The mere fact that retirement pensions are available inso many countries, economically developed and developing alike, signals their importance to manycommunities. When social protection systems emerged in OECD countries, the first element to be introducedas a matter of priority was generally income support arrangements for those who are older. Similarly,development of a stable, adequate and well-functioning system of retirement income has been a priority forsocial programme reform in eastern European countries moving from command to market economicstructures, and in other developing countries seeking to expand their social provisions.

8. There are clear differences in the history of pension development between OECD countries,although there are specific clusters of time around which pension systems were first introduced. Germany,Denmark and New Zealand acted to introduce pension arrangements prior to the 20th Century, and old-agepension systems were operating in a large number of OECD countries prior to World War I. Othercountries soon followed, such that by 1950 all but one of the current OECD countries had establishedpension systems covering at least part of the population. The one exception, the Korean pension system, hasbeen in place since 1988.

9. While all other countries have had pension systems for at least 50 or so years, in many countries,earnings-related and supplementary pension systems were introduced at a later time than flat-rate benefitsand/or may have started with only limited industrial coverage. Since the inception of the programs, most ofthe countries have developed their system by enhancing the amount of benefit and extending the coverage ofpopulation, among other items. As a general trend in the member countries, this enhancement of theprograms continued until just before the world-wide economies encountered the beginning of stagflationcaused by the first oil shock in the early-mid 1970s. Thus, these pension arrangements in total may onlynow be coming towards the stage of maturation in a number of countries.

10. Old-age pensions are the single largest social security benefit in OECD countries, even in thosecountries with significant labour market difficulties which have high unemployment benefit expenditures.This reflects the larger number of retirees compared to the unemployed in OECD countries, the long averageduration of receipt of old-age pensions, and in some countries the relative generosity of old-age pensionscompared to the value of other social security benefits.

11. Old-age pensions are also a significant contributor to economic activity in OECD economies,comprising between six and ten per cent of GDP in most OECD countries. Sudden changes in this level ofexpenditure could have a significant immediate impact on domestic consumption and economic activity, inaddition to the very direct impact on the financial well-being of many older people. To provide a picture ofthe total magnitude of retirement savings and economic resources which is available for older people, thetotal value of private pensions and other forms of retirement savings should be added. However, it isnonetheless important to recognise that retirement benefits are not equally distributed among the olderpopulation, so that some older people may have a very satisfactory level of income in their later years whileother older people may be in poverty.

12. This paper will first seek to outline the rationale and basic structures of old-age pensionprogrammes. Public and private pensions (including employer schemes and voluntary savings schemes)are identified to show the full range of retirement income benefits. Having described the current

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programme arrangements in OECD Member countries, some factors which currently impact on pensionsystems are identified. Population ageing is the most significant factor, but changes in labour marketoutcomes and family structures are also important. Many OECD countries have identified areas ofconcern with their current pension systems and the paper will then document recent progress by countriesin implementing reform.

Rationales for pension arrangements

13. One possible codification of the some potential premises behind the retirement pensionarrangements available in so many countries could include the following:

• Those who are no longer able to earn a sufficient livelihood for themselves because they areolder and unable to work (because of reduced capacity to work or limited employmentopportunities) should receive income assistance - the social protection or povertyalleviation rationale;

• Those who have contributed to the economic and social development of the country duringtheir working life should receive economic benefits in retirement from the collectiveresources of the community - the reward rationale;

• There is a long history of care and respect for the elderly in society, partly reflecting thepotentially vulnerable economic position they may have in retirement, but also reflectingnotions of respect for the elderly as well as children in some way reciprocating the care theyreceived when they were younger - the obligations of younger generations rationale;

• There is also recognition that people, including even those with substantial economic meansduring their workforce years, may underprovide for their retirement years, because ofpreferences for current consumption over savings, insufficient saving for retirement when theperson is young, poor judgement on the likely level of resources required for retirementyears, etc. Pension systems respond to these difficulties by redistributing income within apersons’ lifetime through the accumulation of wealth to be used in retirement - the long-term savings rationale; and

• There may be market failure in the potential provision of retirement income provisionsthrough the private insurance market, especially with respect to insurance againstunanticipated inflation. Also, adverse selection may cause financial difficulties for thelifetime annuities market if purchase is voluntary and encourages only those with goodprospects of longevity to purchase these annuities - the private market failure rationale.1

14. These specific factors help explain the basis of current arrangements. The social protection andreward rationales both receive considerable priority in many of the comprehensive multi-faceted retirementincome systems. The long-term savings rationale helps explain why pension systems often operate ascompulsory funds, including for those with relatively high lifetime earnings who have greater capacity forprivate savings. Some countries have placed greater emphasis on the social protection or povertyalleviation objective for their public pension schemes. In this environment, those who have been working

1 This issue of private insurance market failure is described in more detail in the first in a series of nine

issues briefs prepared by Lawrence H Thompson for the International Social Security Association’sStockholm Initiative (publication forthcoming in 1998).

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and receiving considerable earnings during their working life will need to resort to private savings in atleast one form if they want to continue to have a relatively high standard of living in retirement. Thesocial protection rationale and the private insurance market failure rationales both explain the significantinvolvement of the public sector in pension provision.

15. The relative importance of these objectives can also change over time - increased longevity of thepopulation makes the long-term savings rationale more important, increases in the general living standardsof the community and past improvements in old-age pension benefits may reduce the significance of thesocial protection objective, and upcoming working age generations may have different views on therelative importance of pension contributions and government expenditures on older people compared toother potential uses for these funds. Understanding these underlying rationales for pension systems, andthe relative priority accorded to each of these in different countries, could be central to achievingsuccessful reform of pension systems in respective OECD countries.

Features of retirement income arrangements in OECD countries

16. There are several typologies of the pension programs which are often used. This paper initiallyclassifies the programs from the perspective of management entities as well as the level of program co-ordination. First of all, as the basic element, public pension programs are identified as those which aremanaged by public entities and/or with a great extent of national-level co-ordination. Significantly, thoseschemes with national-level financial co-ordination based on pay-as-you-go funding (e.g. managed byAssociation des régimes de retraites complémentaires (ARRCO) in France) are regarded as public schemesin the System of National Accounts even if they are primarily managed by the private entities. They aredivided into flat-rate basic schemes and earnings-related schemes2 according to their function and respectiveroles. The pension programs managed by private entities with the role of the public body often confined tothat of supervision,3 or private pensions4, which have grown in significance in income maintenance andincome replacement for the elderly over time, are then identified. The latter will be further classified into twocategories: corporate private pensions and personal savings.

17. Public flat-rate basic pensions are intended to ensure the minimum level of income for the elderly.Their funding is tax-based or contribution-based, and, significantly, their eligibility requirements are oftenbased only on age and/or a certain length of the residence in the country, with a means test in many cases.By contrast, earnings-related pension schemes are primarily intended to raise the income to “adequate” or“desirable” level. In those countries which have flat-rate basic pension schemes, the earnings-relatedschemes often serve as the second tier of the whole structure of pension programs. The amount of benefit isrelated to the income which is earned before retirement, and the funding is usually contribution-based (withsubsidies from government in some cases). Eligibility requirements are based on a certain length ofemployment or vesting period in which the insured pays contributions.

2 Strictly speaking, defined-contribution schemes are only indirectly related to the earnings of the insured people:

contributions and the return from them determine benefits, not earnings histories. However, since contributions arethemselves a function of earnings, this paper includes defined-contribution schemes among the earnings-related schemes.

3 It has to be noted that private schemes are sometimes made compulsory (at least to some extent) based onstatutes (e.g. Australia) or collective agreements (e.g. Denmark), as stated later.

4 Schemes for public sector employees, while managed in the public sector, are more akin to private schemes provided by anemployer to employees as part of the remuneration package.

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18. The following provides a general overview of the public pension programs which membercountries have established.

Flat-rate pensions

19. Looking over all the member countries, 25 countries have flat-rate pension schemes, which do varysignificantly in terms of their features and characteristics:

1. Some countries (for example, Canada, Denmark and New Zealand) have flat-rate basicpension schemes funded by general taxation but separate from general social assistanceschemes. They are all means-tested in some way or another.5 Eligibility requirements for thebenefit generally include a certain length of residence in the country.

2. Nordic Countries except for Denmark, as well as the Netherlands, have schemes which acceptcontributions, but do not require any proof of prior contributions when providing the benefit.This scheme is different from the former one in that they are funded by contributionsspecifically imposed for the scheme, but similar to it in that there is no actual linkage betweencontribution and benefit. Again, they require a certain length of residence in the country6, butdo not impose a means-test for the payment of the benefits (except for Finland7). In theNetherlands, entitlement is accumulated at the rate of 2% for each year of insurance, based onresidence.

3. Denmark has a contribution-based supplementary pension scheme (ATP) which providesbenefits linked to contributory history rather than earnings, on top of the basic flat-rate pensionscheme.

4. Ireland, Japan, and UK have a totally different style of basic flat-rate pension scheme thanthose of other countries. They are regarded as the basic pension in each country, but unlikeother schemes mentioned above, the elderly cannot receive this benefit if they do notaccumulate contributions before they retire. None of these countries use residence eligibilitycriteria, as they already have contribution requirements, and the basic flat-rate pensions are notmeans-tested (although the tax-financed, non-contributory pensions in Ireland and the UnitedKingdom are means-tested).

5. Other than the above three categories of basic pension programs, there are other schemeswhich are not old-age pensions per se but have functions similar to them within the socialsecurity system. They consist of those parts of the general social assistance scheme, funded bygeneral taxation, which are specifically targeted to the elderly and designed for long-termbenefit provision. They are called social pensions8 in some countries, and are usuallyadministered differently from conventional social security administration for pension programs.

5 The basic pension scheme in Canada (Old-Age Security) was not originally means-tested, but has been since 1989 when the

wealthy elderly were required to pay-back entitlements. Also, the Old-Age Security and other benefits and tax relief are tobe replaced by a new means-tested Senior Benefit Scheme by 2001.

6 They have a three year minimum residence requirement for payment of benefits.7 Finland has taken a similar path to that of Canada, with the pay-back of benefits introduced in recent reforms.8 Strictly speaking, they are not usual “pension programs” which serve as income maintenance for the elderly. Under this

notion, Italy has changed the name from social pension to social allowance.

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All of them are means-tested and function as the last resort of the state to ensure minimumincome of the elderly. In the Netherlands, social assistance may supplement the basic flat-ratepension for those with insufficient insurance coverage. In Italy, the social pension wasamended in January 1996 to provide higher benefits with a stricter means test for newrecipients.

Table 1: Public flat-rate pension programmes in Member countries

20. Pensionable age, eligibility requirements or other details of each program are shown in Table 1.These demonstrate great variety of practices with respect to both the funding and entitlement in schemeswhich assure the minimum income for older people. Pensionable age is often around 65 years, witheligibility requirements often linked to residence periods and/or means testing. In most cases, thegovernment is responsible for the full cost of the scheme, or where there are contributory requirements thegovernment usually covers any funding deficit.

Earnings-related pensions

21. All of the member countries except for Australia, Ireland, the Netherlands and New Zealand havesome form of public earnings-related pension program. Some apparent similarities and differences doappear for the purpose of comparison, which are as follows:

1. The countries which do not have a scheme of flat-rate basic pension (apart from social assistancemeasures) have generally followed a different path in terms of the development of earnings-relatedpension programs (e.g. Germany and France). In these countries, distinct schemes were at least initiallyestablished in separate sectors of the workforce. These distinctions are mainly of historic origin; theindividual schemes were established initially in particular industries and coverage was then expandedover time. In countries with only earnings-related pension benefits, social assistance schemes usuallyguarantee minimum income levels for older people.9

2. The majority of the member countries have set the pensionable age at 65 years old at least for men(including Canada, Finland, Sweden). However, in some of the transitional economies (such as theCzech Republic and Hungary) the age is lower than 65, while a few other countries have a pensionableage of 67 (Iceland and Norway). There are also gender differences; about one third of member countriesstill set different pensionable ages between men and women (for example, in Austria, Finland andGreece). This is changing in a number of countries, and will be discussed later.

3. Some countries require full or partial retirement before they will pay benefits when the older personreaches the standard pensionable age (e.g. Czech Republic, Finland, Spain). Other countries allowongoing workforce participation together with pension receipt after the statutory pensionable age, thoughthe rate of benefit may be reduced somewhat to reflect the level of earned income (e.g. United States).

9 Japan has a unique transitional feature in this regard. Historically, Japan had managed a system based on the arrangements

of many individual insurers, learning from the corresponding systems of Germany. However, in order to pursue moreegalitarian approach, it underwent a drastic change of the system and introduced the basic pension. This is also a reason whythe basic pension in Japan requires individual contributions, while 1/3 of the payment is subsidised from the government asstatutory arrangement.

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4. A certain portion of the working population -- self-employed persons in most cases -- is not covered inabout half the cases. Other countries exclude very low income earners from coverage (e.g. Austria,Finland and the United Kingdom).

5. All of the countries require a minimum “vesting” period. This is represented by employment in Hungaryand the Slovak Republic and contribution or coverage in others.

6. The method by which final benefits are calculated according to prior earnings can vary considerablybetween countries. The benefit formulas used by countries are often complicated, however, as a generalrule, the formula reflects the amount of average earnings as well as length of coverage and contributionsmade by the retired person.

• Some schemes base the final payment on a percentage of average earnings over the entirecontributory history (e.g. Japan, Luxembourg), while other countries take into account averageearnings over part of the coverage period (e.g. 10 years for France (Régime Général) and 20years for the United Kingdom10).

• Some other countries use a two step method of calculation which first uses average earningsdrawn from the latest and/or best 5-10 years of earnings history and then has a separate part ofthe calculation which takes account of (all, or a part of) the remaining number ofcoverage/contributory years (e.g. Greece, Hungary, Portugal, Turkey and the SlovakRepublic). Those parts are then added to generate the final benefit.

• Some other countries first produce a base amount determined by the government which is thenmultiplied by the “pension points” calculated for the individual, with these points calculated onthe basis of prior earnings, length of coverage and contributions among other factors (e.g.Germany and Sweden).

• Some countries have provision to deliberately exclude a limited number of low or no earningsperiods from the benefit calculation (e.g. Canada) or count some periods outside the labourforce because they were unemployed or caring for young children or close family members asstill building up pension rights (e.g. Finland, Belgium, Switzerland).

• Many earnings-related schemes have some element of income redistribution in the benefitcalculation. For example, there may be a simply a maximum limit on final benefits (e.g.Canada, Italy, Luxembourg); a maximum limit on earnings in the calculation of final benefitsbut no limit on prior contributions based on earnings (e.g. Czech Republic); a minimumamount of benefit or a fixed component in the calculation to which is added an earnings-relatedcomponent (e.g. Luxembourg, Switzerland); a wage floor for accepting contributions whilestill taking such periods into account for the calculation of benefits (e.g. Canada);supplementation of the pension benefit up to a minimum level for all who meet the qualifyingcontributory period (e.g. Italy); and differential weighting given to prior earnings in the middleand low income range compared to high earnings (e.g. United States). These measures canskew the value of benefits to provide higher replacement rates for prior lower income earnersas well as constrain the level of public earnings-related benefit available to those who werepreviously very high income earners.

10 As is described later, there is a tendency to extend these periods of average earnings used in the calculations.

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7. There are two distinct methods of indexing final benefits, according to changes in price inflation or wagegrowth. Countries uprate benefits according to changes in inflation to maintain the purchasing power ofthe pension (e.g. Sweden, the US), in line with wage movements (e.g. Austria, Germany) or both (e.g.Finland, Turkey)11.

Table 2: Public earnings-related pension programmes in Member countries

The level of final benefits from public pensions

22. These public schemes, both flat-rate and earnings-related, are designed to provide a particular levelof benefit to those who retire. This is often measured in terms of a replacement rate, which provides acomparison between the level of pension benefits and the prior earnings of workers.

23. ILO Convention No. 102 (established in 1952) recommends that public old-age pension schemesshould ensure a replacement rate of at least 40 per cent for a couple of pensionable age.12 The Council ofEurope European Code of Social Security has adopted a similar standard.

Table 3: Replacement rate of public pension programmes

24. The way in which pension systems determine the level of benefits is very much influenced by thestructure of the pension system, and in particular whether there is an earnings-related benefit, and the degreeto which governments seek to influence the distribution of retirement incomes through either raising the levelof benefits to low income earners or reducing the benefits available to very high income earners.

25. The conclusion from an examination of replacement rates is that most OECD countries generally(and quite easily) meet the ILO Convention recommendation on the value of public pensions. Manycountries provide far in excess of the recommended minimum level of benefit, providing replacement rates inthe region of 60-80 per cent, such as in the cases of Denmark, Germany, Italy, Korea, Norway, andSweden.13 Of course, countries with low public pension replacement rates may in fact have highreplacement rates through private schemes and these are not reflected in this comparison of public pensionbenefits only.

Financing arrangements for public pensions

26. Almost all public retirement income pensions in the OECD are funded on a pay-as-you-go (PAYG)basis, where current pension financing sources (either current contributions and/or tax revenues) from thecurrent working population are used to fund the retirement benefits of the currently retired population.Denmark is the one exception with a fully-funded supplementary public pension scheme14, while a smallnumber of OECD countries also operate buffer funds which provide a level of reserves to assist with thepayment of pension benefits.

11 Flat-rate public pension schemes can also have this feature (e.g. Australia, the Netherlands).12 More than two-thirds of OECD Member countries have ratified this ILO Convention.13 In most cases, the high replacement rates are funded through the high contribution rates for employers and employees to

these schemes, rather than through subsidies from the general budget. Also, high rates in some current schemes (e.g. Korea)will not be sustainable when the schemes mature.

14 The Danish basic flat-rate public pension scheme has a PAYG funding basis.

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27. PAYG funding means that the currently working population provides the financial provision forthe retirement pensions of the older generation. Any prior contributions of the current retired population arenot recycled as benefits at a later stage. With fully-mature schemes with a long history, the now oldergeneration when they were working funded the retirement pensions of the previous generation of olderpeople. Alternatively, with schemes that have been more recently developed or enhanced, the current oldergeneration may now be receiving higher benefits without the burden of funding during their working lifemore generous benefits to previous retired cohorts.

28. With flat-rate benefits, PAYG arrangements can have the advantage that full rate benefits can beprovided to the currently retired soon after the introduction of the scheme. With earnings-related benefitsthis is often not the case, as 30-40 years generally needs to elapse for schemes to mature and for people tobuild up contribution rights and receive the maximum benefits.

Table 4: Funding arrangements of selected public pension programmes

29. The mechanism by which pension payments are funded can often be confused with thecontributions made to establish eligibility for payments. In a PAYG-financed system, the contributionsmade by the working population serve a dual purpose - to contribute towards the pension payments of thecurrent retired population as well as establish the future pension rights of the contributors. Thesecontributions do not fund the pensions of the contributors, an aspect which is not well understood by manyin the community, including many retired persons. Nevertheless, irrespective of the details of the financingaspects, many of these contributors believe they have entered into a contract for future delivery of pensionpayments under certain agreed conditions, which can explain why some proposed changes to futureconditions may be strongly resisted.

30. In a number of OECD countries (such as Germany, Canada, Belgium, Sweden and Spain),contributions alone already do not cover the full cost of current public pension payments, with this expectedto become a stronger feature in many OECD countries in the context of ageing populations (OECD 1996).These contributions are in some sense a hypothecated tax15 which is supplemented by general revenuesources to pay the entire pension bill in these countries. In other countries, such as Australia and NewZealand, there are no individual contributions to the public pension system, with all payments sourced fromgeneral tax revenue.

31. There have been some questions raised about the desirability of maintaining full PAYG fundingarrangements in a number of OECD countries (e.g. Sweden, Canada). Some countries which have sought toenhance their retirement income systems have tended to place greater reliance on semi- or fully-fundedpension systems. In some instances, this has been a function of necessity, as countries seeking to expandtheir retirement income provisions have not able to finance markedly expanding pension provisions fromnational budgets in the initial phases of the new scheme. New provisions have been introduced on the basisthat future pension payments will be matched by available contributions through funded schemes. There hasalso been some expectation that funded schemes will contribute to higher domestic savings and sustainableeconomic growth, however the evidence is far from clear on this aspect.16 Other countries have seen the

15 A hypothecated tax is one which is collected for a defined purpose, such as for pensions or health care, but the resulting

revenues are not quarantined to be only used for that purpose.16 A recent survey by the Economics Department of the OECD on the “Macroeconomics of Ageing, Pensions and Savings”

concluded that promoting private pensions, especially with tax concessions, will more than likely have no impact onaggregate national savings, but there may be a net increase for low-income earners in mandatory schemes.

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continuation of PAYG funding as important, and have adjusted benefits and/or contributions to achievegreater funding balance (for example in Japan, Germany).

32. In funded schemes there is a clear relationship between contributions and payments, with manyfunded schemes delivering payments which rely on the long-term investment performance of the specificcontributions. The neatness of the link between contributions and final payments may be quite attractive, aswell as the feature that there is generally no prospective additional liability for government.17 However, thisdoes place all of the risks on the contributors, and fund managers in other ways, with government effectivelytaking no share of the risk of providing future pension payments. Full or partial funding is more common inprivate pension systems, where there is not so much opportunity to draw upon alternative financing sourcesif contributions do not cover promised payments at a later stage.

Private pension schemes

33. In a number of OECD countries, private pension arrangements are becoming more important in thetotal scheme of retirement income provision. Some of the attractions of private pensions include:

• providing a mechanism for individuals to make greater provision for their retirement inrelatively safe forms of saving;

• encouraging long-term saving in mechanisms which have restrictions on early access;

• introducing retirement income provisions where the end-benefits are generally fully-funded andwhere the level of benefits is predominantly determined by the earnings on prior contributions;

• some expectation that greater private pension provision may raise the level of national savingsand the internal capacity of the nation to provide investment capital for ongoing economicgrowth (although as mentioned earlier the findings from recent studies cast doubt on thisperspective).

34. The form of these private savings and their interaction with public pensions also can varysignificantly between and within countries. Private pension schemes may be largely limited to particularoccupational groups or industries, or alternatively some form of private pension scheme may be legislativelymandated for all but very temporary employees. Some occupational groups, such as the self-employed andsmall business owners, may still have very limited or no public or private pension entitlement, but rely onsavings for their retirement in the form of private savings or the proceeds from the sale of a business. Thenature of the direct interaction between public and private pension schemes can also vary, as private savingsmay be available to supplement a public pension available to all; alternatively it may substitute for publicpension benefits. The key elements determining this outcome is the extent of universality of public pensionarrangements, as well as the degree of means testing of public pension payments according to the level ofincome they have from other sources.

35. Private pensions do not necessarily mean no involvement of government, as private pensionsavings usually receive some form of government financial subsidy (generally through the tax system) and/orregulatory protection. Governments have an interest in ensuring that retirement savings are available forpeople when they reach retirement age. This is particularly relevant in those countries where contribution to 17 There may be some liability for government in limited circumstances, for example if government acts as guarantor for

private funded schemes that subsequently fail because of poor management of funds or fraud.

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private funds is mandatory by law. Government may also provide financial subsidies to private retirementsavings as a trade-off for the legislative provisions which restrict access to these private retirement savingsuntil retirement age.

Table 5: Selected private pension programmes for employees

Table 6: Examples of major personal savings programmes

36. The major private pension arrangements in OECD countries have the following features:

• The majority are on the basis of voluntary participation, although countries such as Denmarkand Australia (up to a minimum level of contribution) have mandatory requirements whichcover most of the workforce.

• The age of eligibility for final benefits is often lower than the statutory ages for publicpensions.

• They are almost exclusively fully-funded.

• There is a mix of defined benefit and defined contribution schemes with these private pensions,although there is a clear trend of countries now promoting defined contribution arrangements.

• Tax concessions are provided by government (except in New Zealand) in order to encourageparticipation in the schemes and/or increase the level of final benefits.

• These private pensions predominantly provide a supplement to public pension schemes,although this appears to be changing with some schemes replacing more of the public benefit,possibly also in the context of reductions in public pension benefits.

37. The major personal savings schemes included in Table 6 also have a number of common featureswith the major private pension schemes mentioned earlier, especially with the possible early access tobenefits and the tax-favoured treatment of these savings. While not reflected in this table, some OECDcountries have other policy measures to support and encourage other forms of private savings. These mayalso be important sources of financial resources for many older people.

Taxation of retirement incomes

38. Income tax concessions for the elderly (or pensioners) also influence the living standards of olderpeople. Although the detailed nature of such concessions can differ considerably between countries, manycountries do provide tax relief for elderly people or pensioners from their liability for income tax, propertytax, etc.18 19

18 However, some countries (e.g. Denmark, Germany) also reported that they had recently made, or would shortly carry out,

tax reforms to make the system less favourable to pensioners or to abolish most part of the concession.19 Some of the countries reported that they also have concessionary measures in terms of social security contributions which

are on the grounds of age or pensioner status. For example, pensioners do not have to pay contributions to the Health CareServices out of their pensions in Italy; the elderly people after the state pension age do not have to pay the NationalInsurance Contributions in the UK (Ireland also has the same arrangement for the elderly after age 66).

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Table 7: Tax concessions for pension benefits and other income/savings

39. The simplest approach is to regard pension benefits as tax-free income. This ensures thatpensioners receive the full benefit of their pension in terms of increasing their disposable income. Thisapproach is taken, for example, in Czech Republic, Hungary, Korea, Mexico, Turkey.20 In other cases,Germany only imposes income tax on a certain portion of pension benefits which corresponds to notionalinterest for the pension savings.21 In addition, income-tested supplementary benefits for pensioners (e.g.Guaranteed Income Supplement in Canada, housing supplement in Sweden, etc.) and disability pensionbenefits (e.g. the UK, the US) are not taxable in these countries. Benefits from private pensions are notgiven special status as tax-free income, probably the benefits increase retirement incomes on top of thepublic pension benefits, and because contributions to these private schemes usually gain from taxconcessions.22

40. One approach which is common among OECD countries is to provide an income tax credit orrebate for pensioners of public pension programs (e.g. Australia, Finland, Japan, Sweden). These optionsare usually designed to stop taxing pensioners when their only income source is (basic) pension benefits,or the amount of other sources of income is relatively small. The elderly receiving benefits from privatepension programs also get equivalent tax concessions in some countries. For example, Australia willintroduce “savings rebate” which covers (undeducted) superannuation contributions, or net income receiptfrom savings and investment, or a combination of both, up to a certain amount (from July 1998). InCanada, “Pension Income Credit” enables taxfilers to claim a credit when they are receiving benefits fromcorporate-sponsored programs or Registered Retirement Savings Programs.

41. There are other categories of tax concessions that are directly or indirectly related to old-age.First, some countries have an income tax credit/rebate based on the age of the applicant: Age Credit(Canada), Income Tax Age Allowance (Ireland), higher tax deduction for the elderly (the UK, the US), etc.Second, concessions of some other taxes are available in some countries on the ground of age orretirement, such as property tax (Denmark, Turkey, and the US), and capital gains tax (Australia). Inaddition, there are other special tax deductions or tax exemptions based on specific reasons which canhappen to anybody, but with a higher incidence among the elderly: for example, tax deduction based onthe reason of physical/mental disability (e.g. Austria).

Contemporary challenges to pension arrangements

42. Pension systems are being constantly challenged by social and economic developments in OECDcountries. The issue with the most public exposure is the ageing of the population, but changes to labourmarket conditions and employment patterns as well as changes to family structures also can havesignificant implications for pension arrangements and desirable directions for policy reform.

20 Making pension benefits tax-free may be justified as fair in some circumstances. When pre-pensioners have to contribute

after-tax money to the pension fund, it is considered unfair to then tax the benefit that will be provided after they retire.Hungary and Korea reported that they do not tax pension benefits for this reason..

21 supra, note 18.22 A notable exception about this taxation on private pension benefits is the case in the US. The portion of the benefit which

corresponds to employee contributions are not taxable, maybe because employees have to contribute after-tax money to theprogram except for the cases of 401 (k) plan.

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Ageing of the population and financial viability of pension schemes

43. Many OECD populations have been ageing gradually for some years, and this ageingphenomenon is expected to accelerate over coming years. In the context of pensions and health caresystems which are predominantly funded on a pay-as-you-go basis, one of the best indicators of thechallenge of ageing populations is the proportion of older people to the working age population.

44. This elderly dependency ratio shows quite clearly why many countries are concerned about themedium and long-term financial viability of their pension systems. Falling and/or low birth rates acrossthe OECD over the last 20 or so years, which is projected to continue for the immediate years to come,reduce the projected size of the working age population which is available to fund the public pension bill.This lower working age population then interacts with the larger number of older people as a result ofincreased average life expectancy, to produce large increases in the elderly dependency ratio across manyOECD countries.

Table 8: Dependency and support ratios

45. While the expected future trends in the elderly dependency ratio show increases across theOECD, there are differences between OECD countries. Many European and Nordic countries currentlyhave a greater proportion of their population aged 65 years or more compared to other OECD countries,and they generally expect further significant increases in the elderly dependency ratio over years to come.European countries will remain well represented among OECD countries with the highest elderlydependency ratios in the year 2030. Japan (and Korea) are expected to have some of the largest shares ofolder people in their population in coming years. Japan will rapidly move from having a very youthfulpopulation by OECD standards to a very aged population. For a number of other OECD countries, such asMexico, Turkey, Ireland, New Zealand, Australia and Portugal, there will still be a clear tendency towardsa more aged population over the next 35 years, but not to the same extent as other OECD countries.

46. It is usually recognised that greater numbers of older people in the population will haveparticular challenges for OECD countries in terms of pension provision, health care systems, and othersocial programmes heavily utilised by older people. However, this is only a very partial picture of theimplications for public expenditures of ageing populations.

47. As recognised in the recent report, Ageing in OECD Countries (OECD 1996), the current andexpected reduction in the younger age population who are also dependent for support from the workingage population will also offset some of the increases in the older age population. However, this is not asimple offsetting relationship, as the public costs of older people on average outweighs the public costs ofyounger dependants. The Ageing in OECD Countries report provided estimates of the change indemographic dependency ratios which were adjusted to take some account of the differences in resourcesdevoted to the elderly compared to resources devoted to children, with the outcome reflected in the so-called “needs-weighted dependency ratios”. These show a decline in the proportion of the working agepopulation to the needs-weighted dependent populations in almost every OECD country, with theexceptions of Ireland, Mexico and Turkey. Germany, Japan, Austria, Greece, Luxembourg, Sweden andSwitzerland are the OECD countries exhibiting the greatest change in this modified dependency ratio, witha reduction of at least 10 percentage points.

48. The nature of the pension systems in place in OECD countries will also have significantimplications for the future public funding commitments as a result of a more aged population. Thosecountries with more expansive public pension systems and/or with systems which are yet to mature willhave a tendency to greater growth in public pension expenditures compared to other countries, ceteris

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paribus. While it is important to recognise that high total public pension expenditure does not necessarilyimply high budget costs as generous benefits can be funded through high contribution rates, it isinteresting to compare the projected public pension expenditures against the backdrop of past expendituretrends.

49. The following table compares changes in past and prospective public pension expenditure over aninety year period. It provides two time periods for past growth in pension expenditure provides somelimited guide to help us put in context projections of likely increases in pension costs over the next 50 orso years which were recently undertaken by the OECD. These data show that many OECD countries havehad considerable previous experience with increasing costs of old-age pensions. This was especially thecase in the initial 1960-80 period, when many earnings-related public pension systems were developingand maturing. The trends for the later 1980-93 period, when there were less significant increases and evenreductions for some countries compared to the previous period, reflect the interaction of emergingconcerns with future pension increases associated with ageing populations, overall pressures for fiscalconsolidation and more mature public pension systems in some countries.

Table 9: Public pension expenditure, 1960-2050, selected countries

50. With respect to projected pension expenditures, the 2010-2030 time period stands out as the keyperiod when public pension expenditures are expected to grow the most across many OECD countries.The anticipated increase in public pension expenditure over this twenty year period of more than threepercentage points of GDP in 11 of the 16 countries included in the above table demonstrates why the old-age pension issue has absorbed the interests of governments and communities in many countries.

51. The simple trends indicated above do not indicate a consistent expectation of large increases inpension expenditures over the next 50 years, measured as a proportion of GDP of the respective country,as may have been expected from an understanding of the very striking demographic changes. Of thecountries shown in the comparative table, Finland (2010-30), Germany (2010-30), and Japan (1995-2050)stand out as having a large expected growth in pension expenditures compared to their experience over the1960-93 period. For many countries, the projected increase in pension expenditures over the next fiftyyears will be either in line with or below historical increases in pension expenditure.

52. Nevertheless, simple trends can be deceptive. The expected growth in public old-age pensionexpenditure over 2010-30 will be greater than growth over the more recent (and albeit shorter) 1980-93period for every country shown in the above table, except the United Kingdom. Of some concern is thecapacity of countries to finance this anticipated expenditure over the long run if they have a smallerworking age population, with the resulting burden on the future working age population often being usedas a justification for current pension reforms. As noted before, those systems which have a greater degreeof adequate funding for future pension payments may be able to cope better with increases in pensionexpenditure without resorting to other budget funding to make up for any imbalance between contributionsand payments (in the contributory schemes). Here, there are many unknowns about what the future holds,in terms of overall economic developments in each country, future employment rates, the extent ofunsatisfied labour supply and productivity growth which all impact on prospective living standards.

53. Many OECD countries still face considerable pressures for fiscal consolidation and would beprudent to take ameliorative action to try to reduce the expected call on public funds from growing pensionexpenditures in especially the 2010-30 period. In this context, where governments can anticipate futurepublic expenditure requirements, there is a case to try to limit that level of exposure to increasing publicpension costs in order to provide future governments with greater flexibility to determine their priority

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areas for public expenditure. If governments act to limit their exposure to future pension expenditureswhich are in excess of contributions, they may have greater capacity to direct funds towards other morepressing social problems which could develop in the future.

Are old-age pension payments a community priority?

54. There is a wide range of perspectives across the community as to the priority governmentsshould give to the payment of adequate or generous old-age benefits. Historical traditions and culturalfactors will exert an influence, particularly if there are strongly held views about respect for oldergenerations as well as economic assistance to the older generation no longer able to work to provide forthemselves. Even though there is evidence of a breakdown in some family relationships, and changes inthe living arrangements of families, there still remains a keen interest to protect and assist older membersof society.

55. Across OECD countries, the scale of pension expenditures suggests that this is a priority area forsocial expenditure. Public policy does exert a significant influence on pension outcomes, in terms ofqualification and eligibility rules, the rate of payment and mechanisms for adjusting rates over time.Nevertheless, governments generally act cautiously when they try to pursue policy changes in the pensionarea because they will affect the interests of a growing proportion of the population who are older as wellas the longer term interests of the working population. The experience of some countries which have gonedown the reform path, and not achieved the full range of proposed reforms, indicates the power which thegeneral public as well as sectional interests can exert on reform proposals. It is also important to recognisethat retirement incomes issues may have a heightened sensitivity because of the economic vulnerability ofsome retired people, as they generally cannot generate income from workforce participation as analternative to pension income. Pension debates also have a time dimension which transcends just thecurrent retired population, as the working age population may also consider the likely implications fortheir own future pension entitlements.

The specific challenge of longevity

56. One of the main reasons for ageing populations is the increased time people are living. Sincepension systems were developed, there has been a consistent increase in life expectancies for both men andwomen across OECD countries.

Table 10: Future life expectancy at age 60, 1960-95

57. Average life expectancy of both men and women is still increasing. Comparing those aged 60years in 1960 compared to those aged 60 in 1995, there is estimated to have been an increase in future lifeexpectancy of between 2 and 5 years in most OECD countries. Nevertheless, some countries have muchlower growth in future life expectancy, with little change overall (and even some falls at times) for oldermen in Hungary, Poland Denmark and the Netherlands. By contrast, very strong growth in future lifeexpectancy is estimated for Japan (of 5.5 years for men and 7.5 years for women) and Switzerland (of 3.8years for men and 5.3 years for women) over a 35 year period. Women have a higher life expectancy thanmen, and recent projections suggest this gender differential will increase in many countries.

58. Longer life expectancy has significant challenges for pension systems which were designed toprovide benefits to a particular segment of the population in their retirement. As mentioned before, most

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public pension systems in OECD countries have a statutory retirement age where full benefits areaccessible at age 65 at least for men, with retirement ages for women sometimes slightly lower. For thoseaged 60 in 1960, they expected to live until around age 75-77 for men and 78-80 for women.

59. Until recently, these statutory retirement ages have been very stable reflecting those set at thetime of establishment of the pension scheme. Yet, the average older person is now living far beyond thestatutory age of retirement, with recent projections suggesting those reaching age 60 in 1995 will live onaverage until their mid to late 70s for men and between 80 to 85 for women across most OECD countries.Later cohorts could live even longer if past trends are any guide.

60. This has implications for both the financial viability of schemes which provide lifetime pensionsas well as the level of private savings older people may wish to have for their retirement years. Mostpension systems were designed a number of years ago when people were not living as long and pensionpayments were potentially not as high as they are today. There was much less likelihood of PAYG-fundedpublic pension systems having an imbalance between contributions received from the working agepopulation compared to pension payments to the retired population. Longer time in retirement also hassignificant implications for the adequacy of private savings held by the retired, as they run down theirsavings over the years. If people are living longer, those accumulating private savings for their retirementyears may need to factor the possibility of living well into their older years when they assess the level ofsavings they want to achieve.

Labour market challenges to pension arrangements

61. As most pension systems in OECD countries are contributory schemes, with eligibilityrequirements and the level of payments more than likely linked to either previous years of employment orsalary, the labour force experience of the working age population impinges heavily on future pensionoutcomes. Many of the people who are now retired and receiving old-age pensions in OECD countrieshad previously worked in a full-time job, probably continuously and many for a period of at least 40 years.This stylised picture of the average characteristics of the currently retired population may be quite differentfor future cohorts of retired people.

62. Labour market conditions have changed substantially compared to 25 years ago, with high andpersistent unemployment now a feature of all too many OECD economies. High unemployment isexpected to remain in many countries for some time to come. Widespread unemployment is creatingserious funding difficulties for the pension systems in a number of the eastern European countries intransition (such as Hungary and Poland) where there has been many people newly accessing retirementbenefits at the same time as pension contributions have been declining.

63. There is also some suggestion that on average employment tenure is becoming more precarious,and an increasing proportion of the workforce in the future may have spells of unemployment during theirworking life. Long breaks in employment can seriously affect the accumulation of pension rights, as wellas deplete whatever private savings the family may have in order to meet more immediate income needs.There may be some question over the adequacy of current pension arrangements in some countries toadequately cater for the retired people in the future who will have had only a limited employment history.The increased incidence of part-time and temporary jobs in many OECD countries, which often do nothave well established links to the accumulation of future pension rights, is another challenge to currentpension arrangements.

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64. Some OECD countries (such as the United States, Australia and the United Kingdom)historically have mobile workforce with relatively low average job tenure. Other countries may havelabour markets which are moving closer to this feature. This type of labour market creates challenges forprivate schemes to deal appropriately with issues of vesting, transfer and preservation of pension rightswhen people change jobs, and more importantly when they change employers. Care needs to be taken toensure that private pension schemes themselves do not significantly reduce the level of labour marketflexibility, which may occur when private pension provision is predominantly available in only someindustries.

65. Over many years, there has been a clear trend towards lower male labour force participationparticularly at older ages. In some instances, this is related to increased living standards of the population,with these older men choosing to enjoy more leisure time funded by the savings they have built up duringtheir working life. In other instances, older workers have been targeted for displacement as companies hitby structural changes or poorer economic conditions have sought to reduce the size of their workforce.Public policy has also had some influence as a number of countries facing high unemployment sought toencourage early retirement among older workers (through access to public benefits) with the hope offreeing up employment opportunities for younger unemployed people.

Table 11: Labour force indicators, for men and women aged 55-64, 1980 and 1996

66. Over the last fifteen years or so, employment rates for older men have continued to decline inmany OECD countries. The scale of the decline has been more substantial in some countries compared toothers, with more limited reductions in Japan, the United States and Sweden. By contrast, other OECDcountries of Canada, Germany, Finland, France, Netherlands and Spain have had reductions of around 20percentage points or more in the employment/population ratio for men aged 55-64 years between 1980 and1996. In some countries, these employment declines are also reflected in high unemployment rates forolder men. In 1996, Germany and Spain had unemployment rates for older men above 10 per cent, withFinland around 25 per cent. However, the norm is for these men to leave the labour force when they leaveemployment and involuntary job losses among this population are not fully reflected in unemploymentstatistics. The employment situation for older women has seen more variability across OECD countries,with some countries continuing to see increases in labour force activity as new cohorts of women withmore established workforce patterns reach older ages, while in other countries there has been a cleardecline in employment participation among older women aged 55-64 years as well as older men.

67. The labour force trends for older people, particularly for older men, contrasts significantly withthe continuing increase in female labour force participation more generally. Women are now much morelikely than in the past to have their own pension rights as a result of a significant period of employmentduring their working life. While some women, particularly those with dependent children, may be morelikely to participate in part-time employment which may not generate pension entitlements, increasingchild-care opportunities in OECD countries are improving the likelihood of women being able to takefull-time jobs if they are available. This provides increasing protection for those women who may havebeen married but who now live alone in their older age, especially if they do not have access to survivorbenefits from a deceased spouse.

68. For the increasing proportion of couples with a history of significant labour force participationby both partners, where they have both accumulated future pension rights, the retirement decisions theyface may be quite different to the outcomes and choices for many other workers. These two-earnercouples will derive pension benefits from systems largely designed to provide sufficient means for thoseliving alone or supporting a dependent spouse. These couples will also have on average accumulated

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greater private savings throughout their working life, which may be only partially reflected in their directretirement income provisions. From their advantageous position in terms of family incomes, savings andasset accumulation, these couples may have significant opportunity to retire early and enjoy their leisure,while still enjoying a high standard of living. These couples may also choose to align the timing of theirretirement, focused on family and joint retirement income considerations.

Changes to family arrangements

69. A number of the broader socio-demographic trends apparent in many OECD economies alsohave implications for pension arrangements. As mentioned above, OECD countries have all experiencedincreasing labour force participation of women, which in turn leads them to accumulate their own pensionentitlements in many countries. The tendency towards increasing economic independence of women, lateraverage age of marriage, later average age at which they have their first child as well as having on averagesmaller families are among the reasons why women are recording longer periods in the paid workforceduring their working life. While many pension systems do provide some form of pension coverage andprotection for dependent spouses of the employed, those women who actively participate in the paidworkforce will generate greater old-age pension entitlements and private savings than those who did notparticipate in paid work.

70. Recent socio-demographic changes may change the extent to which children will or can care fortheir parents. The increasing difficulty which more recent young entrants to the labour force have had toestablish secure employment patterns limits the extent to which children can be relied upon to help theirparents who may require financial assistance. If anything, in many OECD countries there appears to be anincreasing tendency for parents to provide financial assistance to their teenage and adult children, ratherthan transfers from children to aged parents. The smaller average family size also limits the extent towhich (the now fewer) children may be able to directly assist their longer-living parents.

71. To some extent, pension systems, with PAYG funding, still reflect historical traditions in manycountries of children caring for their aged parents who are no longer able to work. In an indirect way, thechildren of the retired generation are contributing to the financial well-being of their parents, albeitthrough a redistributive filter on both the contributions paid by the children and the benefits received byretired parents.

72. Many OECD countries have generally experienced higher divorce rates over the last 25 or soyears compared to previous times. This poses particular challenges for the pension rights of the formerspouses now divorced who have not been active labour force participants, yet who may have assisted andfacilitated the career progress of their former spouse who retains their entire pension rights after divorce.Countries may wish to consider whether their pension systems cater well to this potentially dispossessedgroup, as a result of the phenomenon of divorce.

Private wealth of older people

73. A final major aspect which has implications for public retirement incomes policy concerns thelevel of private wealth of individuals and families. This may have been accumulated through a number ofsources, such as income derived from continuous long-term and full-time employment, increasedlikelihood of both members of a couple participating in the labour market, rising real wages and livingstandards of the population, generous returns on prior savings and investments, appreciation of the valueof assets as well as payments from private pension funds.

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74. Recent information compiled for the OECD provides some indication of the relative scale of thestock of private wealth compared to current annual income for people approaching retirement and inretirement in selected OECD countries (Table 12). These data suggest that the cohort approachingretirement can have substantial levels of private wealth, at least in the upper income quintiles.

Table 12: Wealth to income ratios, household with head around 55 and 67

75. In the context of many OECD governments concerned about the growing costs of public pensionsystems as a result of ageing of the population, as well as continued pressure for fiscal consolidation, it islegitimate to question the extent of public support and public subsidy being directed to the group ofwealthy older people via possibly both the public pension system and private pension arrangements.Governments may have some difficult choices to make in the future about where they allocate publicfunds, and the substantial level of private wealth for at least a proportion of the older population mayjustify some reallocation of public moneys away from this group.

Retirement income concerns across the OECD

76. Pension systems are being constantly challenged by social and economic developments in OECDcountries. The issue with the most public exposure is the ageing of the population, but changes to labourmarket conditions and employment patterns as well as changes to family structures also can have significantimplications for pension arrangements and desirable directions for policy reform.

77. There are many and complex factors impinging on pension systems, emphasising the wide scope ofissues facing governments when they are undertaking major reviews of their pension arrangements, and thechallenges facing governments when they are considering reform or adaptation of their pension systems.

78. From their response to the OECD Caring World synthesis questionnaire, countries have explicitlycommented on the main challenges they are facing with their national retirement income arrangements.

Table 13: Current retirement income concerns and processes

79. At the forefront of these concerns is the medium and long-term financial viability of public pensionsystems. This is by far the main issue OECD countries are grappling with as they consider and pursuereform to their pension systems. There is a strong belief among many countries that they should prepare forthe impact of the ageing of the population on public pension costs. This is not just related to the expectedchanges in the financial balance of public pensions funded predominantly on a PAYG basis, but is alsolinked to other pressures on government such as fiscal consolidation and desires to not overly constraingovernment budgetary choices in the future because they need to finance a growing pension bill. Issues ofintergenerational equity are also related, in terms of concern over the potential burden to be placed on futureworking generations to fund the public pensions of the large number of future retirees.

80. A lesser, but still significant number of countries are also concerned with the low effective age ofretirement in their country. Some of the reasons for this outcome were commented on in the previoussection, such as long-term trends for declining labour force participation of older men, high displacement ofolder workers from employment, public benefits which encouraged early retirement, and possibly greaterwealth of the current generation approaching retirement compared to previous generations. Nevertheless,some countries are concerned with the prospective changes in the demographic composition of their

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population, in particular the increase in the population aged 65 years and over at the same time as theyexpect a fall in the share of the population aged 15-64 years. In this context, countries are looking for waysto shift the balance between work and retirement so that people will on average work longer.

81. There are a range of other concerns among OECD countries with current pension systems, asshown in the table above. These include:

• the adequacy of pension benefit levels, in the eastern European countries in transition, but alsoin other developed countries such as Australia, Belgium, Ireland and the United Kingdom;

• improving the size of the population covered by pension arrangements, which may involveelements of extending coverage to other industries not already covered, greater convergencebetween existing pension schemes and/or expansion of private pensions;

• improving the financial incentives inherent in pension systems for people to work (and possiblywork longer), as some pension systems currently provide little benefit to people who reach acertain number of years of employment or contributions, give little increase in pension forcontributions made in later years, or may be highly redistributive in providing relatively smalladditional benefits to those who have worked for many years compared to those with a limitedworkforce history.

82. Many OECD countries have pursued some reform of their pension systems over the last ten years,as shown in the above table. They are responding to the many challenges facing pension systems. A numberof countries have also established national consultative commissions to investigate further options forpension reform. These arrangements may enable government to make better use of expert advice availableoutside government, introduce greater transparency to the process of deliberation of the direction for reform,as well as more actively engage the public in the process at an early stage while options are still beingdeveloped and considered.

Details of recent pension reforms across OECD countries

83. Pension reforms undertaken in OECD countries over the last ten or so years have taken manydifferent forms. These include measures to increase the age at which people can receive pensions, policiespromoting longer employment, reductions in the generosity of benefits through reductions in benefitpayments or increases in the number of years of employment to generate the same level of benefit, increasesin contribution rates to assist in achieving a better balance between contributions and payments in futureyears with PAYG systems, and promotion of private pension arrangements together with greater funding offuture pension commitments.

84. Comprehensive pension reform usually does not involve a single policy change. It is evident that anumber of countries have sought to reduce future public funding commitment to pension payments through anumber of measures, which may, for example, involve changes in pension benefits, contribution rates andextension of private pensions. Similarly, policies encouraging longer workforce attachment may involvelimiting public early retirement opportunities with public pensions, increasing the standard age of retirement,and introducing higher pension payments for those who work beyond the statutory retirement age.

Table 14: Directions of recent pension reforms in Member countries

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Chart: Countries taking policy action in retirement incomes,as a proportion of countries surveyed

Reductions in pension generosity

85. Reductions in the generosity of pension payments have been pursued in a number of OECDcountries in order to reduce the financing pressures associated with the future ageing of the population.These have taken a number of different forms, only some of which have involved actual cuts in rates:

• Reductions in the final benefit available after the usual number of years of work and/orcontribution, in Germany, Italy, Norway, Canada, Greece and Finland (including meanstesting of the previously universal public flat-rate benefit since 1989 and 1996 respectively),United Kingdom (reduction in the value of the second-tier earnings-related benefit), NewZealand (both benefit reductions and some income targeting of benefits), Sweden (bothreduced benefits and changes to the calculation of payments), and Portugal (reducing the rateat which pensions accumulate by 10 per cent).

• Less generous adjustment of benefits to changes in inflation, in Japan and Germany (with theintroduction of net income wage indexation which removes the effects of changes in incometaxes and social security contributions rather than the previous gross wage indexation method),and Finland.

• Increases in the level of contributions and/or years of employment required to generate thesame level of benefits, in Turkey (increase in the number of days of premium payment requiredfor maximum payment and no amnesty for unpaid contributions), Portugal (increase inqualifying period from 10 years to 15 years before a pension entitlement is established), andFinland (gradual increase in contributions until 2030). The Czech Republic is contemplatingan increase in contribution rates in responses to the anticipated imbalance between paymentsand contributions in 1997.

• Increases in the number of years of earnings used to calculate final pension payment, in Spain(where it increased from 8 to 15 years), France (Régime Général: 10 to 25 years) and Sweden.

• Sweden will transform its present PAYG defined-benefit system to a PAYG defined-contribution system.

• As part of its broader pension reforms to operate from 1999, Sweden is also to incorporate anelement in the benefit calculation which adjusts the pension for increases in the average lifeexpectancy of new cohorts of retirees. Germany will also implement a similar life expectancyfactor into their pension calculations.

Greater adequacy of pension benefits

86. Other OECD countries have had concerns about the adequacy of pension benefits and respondedthrough increases in the level of benefits over recent years. For example, Australia has a long-standingbipartisan target for public pension payments that they should be set at a value of at least 25 per cent ofmale total average weekly earnings, so pension payments increase broadly in line with community livingstandards. The current government has now taken the step to enshrine this target into legislation and set

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aside provision in future budgets for meeting this requirement. Other countries which have historically hadvery low retirement pension benefits, such as Poland, have also pursued increases in the real level of benefitsover recent years. The Czech Republic has recently introduced price indexation of pension payments as wellas the capacity for adjustment in line with increases in community living standards. Greece has also soughtto increase the coverage of retirement income arrangements across a greater proportion of their employedworkforce. In Greece from 1996, a pension supplement was available using a means-test, the first time sucha concept was used in the Greek social security system. In 1997, Farmers’ social insurance coverage wasbrought into line with the rest of the population, through the introduction of a contribution-related pensionscheme to gradually replace the current government-financed flat-rate scheme.

Increased funding of public pension schemes

87. As noted above, benefit reductions have been pursued in many of these countries to reduce theanticipated growth in public pension expenditure over coming years. As most public pension schemesoperate on a PAYG funding basis, some countries have also sought to combat the expected future fundingdifficulties through increasing the level of funding of these schemes. For example, Canada is seeking toincrease the funded element of its public earnings-related benefit (Canada Pension Plan) from the currentlevel of two years worth of reserves up to the level of five years of reserves. The Swedish public system isalso to introduce new funding arrangements with 2.5 percentage points of the total level of contributionsof 18.5 per cent being set aside in a fully-funded component which will grow as the current buffer funddeclines with ageing of the population.

Expanded coverage of private pension arrangements

88. An alternative approach to modifying the funding basis of public schemes is to instead placegreater reliance on expansion of a fully-funded private pension system. This strategy has been pursued in anumber of OECD countries.

89. Countries in transition, such as Hungary and the Czech Republic, are looking to private pensionarrangements as a means of supplementing retirement pension benefits for workers without furtherexpanding large public schemes. Reform of the pension system in Poland will rely on the investmentearnings of retirement funds to finance the second-tier earnings-related benefits, while encouraging theestablishment of a third tier of retirement benefits reliant upon private pensions and voluntary savings. TheSlovak Republic allows private pension provision, but the rate of coverage is still very low.

90. Other OECD countries encouraging greater reliance on the private pension system to provideretirement benefits include Australia, Denmark, Mexico, Japan, Korea, Canada, Ireland, New Zealand,Germany, and the United States. Those countries with relatively low replacement rates from their publicschemes (e.g., Canada, Australia, Ireland and the United Kingdom) place greater importance on privateschemes to supplement the low level of public benefits, particularly for those who want a relatively highstandard of living in retirement.

91. In a number of countries, such as Australia, Ireland and the United Kingdom, public policysupporting private pensions has been accompanied by increased public supervision and regulation of privatefunds to improve the safeguards on the funds managed for contributors. This highlights the decisions thesefunds may face in attempting to achieve high investment earnings in ways that may have a greater element ofrisk, compared to lower investment returns and therefore lower final payments for contributors through risk-averse fund management practices.

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92. Most of these countries provide tax concessions as a means of encouraging greater investment inthese forms of saving. Tax concessions have not been provided in New Zealand which has instead pursued apublic education campaign and in the Czech Republic, and over coming years it may be interesting tocompare growth of private pension funds and changes in national savings in these countries compared tothose countries offering tax inducements.

93. In both Australia and Denmark, the mandatory private pension coverage of most of the workforcehas achieved considerable increases in coverage of around 50 percentage points of the employed labour forcewithin the last ten years. Australia has achieved this level of coverage through legislative requirements onemployers to provide a minimum level of contributions for all eligible employees, while new collective wageagreements in Denmark have been the means of extending private pension coverage in that country. Othercountries with extensive but voluntary private arrangements generally only cover around 50 per cent of theemployed labour force at best, well below the 80-90 per cent currently achieved in Australia and Denmark.Mexico has also chosen to pursue the mandatory route from 1997.

Policies to change the effective age of retirement

94. OECD countries have been active in pursuing policy changes designed to increase the financialincentives for individuals to work longer. While most countries have statutory retirement ages at whichpeople can access full public pensions of around 65 years, and slightly lower for women in a number ofcountries, the average age of retirement in many countries (where information is available) is well below thisstatutory age. For example, over the last twenty years, the average age of retirement in Canada has fallenfrom 65 years to 62 years and in Denmark it has fallen from 65 years to 61.5 years. Recent estimates forthe Netherlands put it around 60 years there and it is below 60 years in Poland.

Table 15: Pensionable age and early/deferred retirement

95. There are relatively few examples of policy changes to increase the statutory retirement age forboth men and women in OECD countries. Where this is planned, it is usually to bring the retirement ageabove the current age of 60 (as in the case of Japan, Hungary and the Czech Republic). Italy will increasethe male retirement age from 63 to 65 by the year 2000 at the same time as the female retirement age isincreasing from 58 to 60 years. Only the United States has a firm policy to increase the pensionable agebeyond 65 (taking it up to 67 over the next 25 years), although Denmark, Iceland and Norway already havestatutory retirement ages of 67.

96. More often, the proposed changes to the statutory retirement ages will align (increase) theretirement age for women up to the same age as for men (as in Australia, Belgium, Germany, Greece,Hungary, Japan, Portugal and the United Kingdom). In other instances, the age for women is beingincreased but will still remain below the retirement age for men (in Switzerland, Czech Republic, Italy).Most of the remaining OECD countries already have an alignment of retirement ages for men and women.

97. Pensions and other income support payments are generally available to people who retire beforethe set statutory ages. These payments may be part of the broader income support arrangements for theunemployed, with the early retirement benefit available to people within a specified range of the statutoryretirement age and who may have exhausted their unemployment insurance entitlements. Alternatively, theymay be available as an adjunct to the public retirement pension system. During the 1970s and 1980s, theseprovisions were encouraged as a means of providing long-term income support for those older workers

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below statutory retirement ages who had lost their jobs and in the anticipation that more job opportunitieswould be created for younger unemployed people.

98. During the 1990s, many OECD countries have questioned the merits of these policies and anumber have taken steps to reduce the financial inducements in these provisions for older people to retireearly. While some of these changes are still to be introduced as a result of slow phasing in of newarrangements, they encompass:

• Increasing the minimum age at which early retirement payments can be accessed, in Finland,Germany and Poland.

• Changing the age at which people can access early retirement pensions or introducing earlyretirement pensions in association with increases in the statutory age of retirement, in theCzech Republic, Switzerland and Hungary.

• Increasing the number of years of prior employment or prior contributions before individualscan access early retirement benefits, in Belgium, Hungary, Italy and Germany.

• Reductions in benefit payments for those who retire early, in Australia (with the Mature AgeAllowance) and Hungary (with the Labour Market Fund) or through introducing actuarially-based payment adjustments, such as in Sweden and the Slovak Republic.

• A requirement that authorities fully explore all relevant possibilities first apart from provisionof an early retirement pension, that opportunities for training and rehabilitation are tried andthat all measures to assist the applicant to re-enter the labour force must have failed before adecision is taken to provide an early retirement pension (Denmark, from July 1998).

99. The policy changes to public benefits which are designed to reduce the attractiveness of earlyretirement may have limited effectiveness on the actual retirement decisions of individuals. The extension ofprivate pension schemes, many of which have opportunities for early retirement as in the United Kingdom,Australia, Finland and Sweden, may lead to further reductions in the effective age of retirement. Thefinancial situation of the family, in terms of employment attachment and other private savings could also bemore important contributing factors to the retirement decision than the availability of public pensions.Nevertheless, it is desirable for countries to limit the extent of public subsidy for early retirement.Retirement decisions should be taken in an environment where public policy is at least neutral in terms offinancial incentives for early retirement.

100. Public and political pressure may limit the extent to which countries can pursue reforms to earlyretirement provisions. For example, in Norway where the government has a policy stance to increase theeffective age of retirement, the lower age limit for access to the early retirement pension is to fall from thecurrent age of 64 to 62 years in March 1998, as part of a recent collective wage settlement.

101. Above the age of statutory retirement, some countries have introduced financial incentives forpeople to keep working and delay taking up their pension entitlements. This usually takes the form ofpermanent increments to the pension rate when it is finally accessed, adjusted according to the period ofdeferment. Some countries have limits on the maximum period of deferment, such as to age 70, but Finland,Sweden (from 1999) and the United Kingdom (from 2010) will allow indefinite delay of pension take-upwith commensurate bonuses to be paid from the time when the pension is accessed.

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102. In some cases the rate of pension is increased according to actuarial adjustments (in Canada since1987, Luxembourg and Sweden from 1999) while other countries have set permanent increments accordingto the number of months the pension is deferred (Finland, Hungary, Germany, the Slovak Republic andSweden). Australia plans to introduce a single lump-sum bonus for those who defer retirement, payable atthe time they initially take up the old-age pension according to a formula which takes account of the numberof years they defer and the value of their pension payment.

Other employment and pension linkages

103. Some retirement income systems are being adjusted so that they provide greater direct relationshipbetween years of contributions and final payments. Some countries, such as Spain and Hungary, haveidentified design faults with current arrangements in that they provide only limited increases in pensionpayments for working longer and/or there is not a clear link between the level of contributions and finalpension payments. The imminent pension reforms in Sweden will introduce a greater linkage betweencontributions and final benefits, by introducing a PAYG defined-contribution system in combination with afully funded premium reserve system.

104. One way in which some countries are breaking the linkage between contributions and finalpayments includes recognition of periods of unemployment towards the establishment of pension rights. TheCanada Pension Plan allows interruptions to contributions for illness, unemployment and education, and upto 15% of months (with ether low or no earnings) can be disregarded in the calculation of final benefits.Luxembourg and Finland also allow certain periods outside employment (such as unemployment, sickness,disability and training/education) to contribute to pension qualification requirements.

105. Other countries, such as Turkey, Italy and Greece have identified difficulties of very early accessto pensions once people have met the necessary number of contributory years, and some reforms provideimproved incentives for people to work longer. Switzerland allows people to keep working past the usualretirement age and this enables the people enrolled in the compulsory occupational pension to accumulate ahigher pension if they are not eligible for the maximum pension payment (perhaps because of limited priorwork or contributory history).

106. Many OECD countries have pension rules which encourage people to phase down their labourforce participation gradually, particularly as they approach the statutory retirement age. With respect tothose in receipt of pensions above the statutory age of retirement, OECD countries have conflictingapproaches to encourage or discourage labour force participation.

Table 16: Pensions and employment: linkage in selected countries

107. Availability of partial pensions is one method by which a number of countries attempt to facilitatea smooth transition from work to retirement, enabling people below the statutory retirement age to reducetheir hours of work with the loss of income from earnings partially compensated by the partial pension.Examples of countries which currently provide this option include Denmark, France, Japan, Luxembourg,Germany, and Sweden. In many cases, phased retirement has only become available over the last decade orso. In Sweden, where the partial pension arrangement was introduced in 1976, recent reforms restrict access(the minimum eligibility age is increasing from 60 to 61 years) and the generosity of the pension payment isbeing reduced from 65 per cent to 55 per cent. From 2001, the partial pension option will be withdrawn aspart of the set of broader pension reforms to be introduced in Sweden.

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108. For those above retirement age, older people already in receipt of a pension may face incentives orclear discouragement to keep working (usually on a part-time basis), aside from the deferred pensionincentives discussed earlier. There are clear differences between OECD countries on this aspect of theirpension design. Belgium and the United States both provide concessional treatment for earnings obtained byold-age pensioners. Norway also provides incentives for people drawing pension between ages 67 and 70 tokeep working through generous limits on earned income. In Denmark, the policy direction is to encourageolder workers to delay retirement through improvements in working conditions. Employers and unions,supported by the government, are to develop specific strategies aimed at making it more attractive tocontinue to work after the age of 60. Other countries, such as Poland, provide pensioners with theopportunity to earn extra income without significant concessions or incentives. Still other countries arelooking to restrict the employment activity of old-age pensioners: Italy is moving to limit the opportunity forpeople to concurrently draw a pension and work, and the Slovak Republic has draft legislation which wouldpreclude old-age pensioners from working while drawing a pension. France has a principle that people mustleave employment before they can draw a pension, but temporary rules allow a combination of work andpension receipt in some cases.

109. Countries have been slower to respond to the retirement income challenges from changes inemployment patterns. Finland is seeking to improve pension coverage for those with short-term employmentarrangements from 1998. The first revision of LPP (legislation for occupational compulsory schemes) inSwitzerland which is now underway will allow to correct the current exclusion of many part-time workersfrom occupational pension schemes because their earnings are generally below the lower income limit forcompulsory coverage. The National Pension Reform commission in Korea is also considering options toextend coverage to the urban self-employed. Over the last decade, Ireland has expanded coverage of itssocial insurance pension to include both the self-employed and part-time workers.

110. On the international front, OECD countries are witnessing not only increased globalisation inproduct markets but also increased globalisation of labour services. Some OECD countries have alsohistorically had high rates of net migration. In response, some countries have developed bilateral (and inother cases multilateral) agreements to cater appropriately for people who have established pension rights inseveral countries.

Box: Examples of international social security agreements for pension totalisation

Policies responding to changes in family circumstances

111. A number of countries have modified their pension arrangements to respond to changes in familycircumstances. Germany allows periods spent raising children (up to the age of 10 years), and since April1995, periods spent providing unpaid home nursing care, to count as pension contribution periods. Belgiumalso allows career break periods, such as when parents care for young children, to be included as timeaccumulating pension rights. As part of the recent pension reforms in Italy, women with a contributoryrecord are given an extra three months notional contribution for each child they have had, up to amaximum of twelve months. Switzerland similarly enables those caring for young children and closefamily members to benefit from notional pension contribution credits since the 10th AVS Review which waseffective from January 1997, while the United Kingdom is considering the establishment of a CitizenshipPension which for example would provide increased benefits to those unable to contribute to alternativeschemes because they are undertaking caring duties. In Ireland, persons receiving the One Parent Benefit orthe Carer’s Allowance may be eligible for credited contributions, which assist in qualifying for pensions.These moves contrast with steps taken by other countries to limit the extent to which non-contribution

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periods count as qualifying periods for pension, in order to improve the financial balance of their pensionfunds.

112. Belgium has an innovative approach to respond to the increased incidence of divorce. A specialold-age pension is available to the divorced husband/wife at age 60, based on 37.5% of the former spouse’searnings during the marriage reduced by the amount of pension they earned in their own right during thoseyears. This provides some income protection to dependent spouses who subsequently become divorced andwould be without adequate retirement income provision in the absence of such a pension.

Concluding remarks

113. Pension reform is neither simple or easy, if it is done properly. Yet governments do need torespond to the multitude of challenges to pension arrangements. The process of reform may be assisted bya comprehensive internal review of pension arrangements, to establish the major threats to the pensionsystem, involve experts outside of government and enable community involvement in the process --although this does not guarantee that governments will get their way on the final agreed policy changes.

114. Pension reform often does not provide an instant solution. Most changes are phased in over anumber of years, so as not to disadvantage those who have made retirement plans and are now close toretirement and to ease any potential public disquiet over the nature of the changes themselves. For manyOECD countries, the phasing in of changes in response to the ageing of their population will not matter, aslong as the new policy position is operational and effective for the critical peak time around 2010-30.Nevertheless, it does point to the need for the implementation of responses to take account of the generallylong phasing in of many changes.

115. Governments need to be alert to the need for further change. The social and economicenvironment in OECD countries has been subject to considerable change over the last thirty years -- andthere is no reason to expect that the pace of change will recede. New policy approaches adopted now mayexacerbate other identified problems; for example, greater encouragement of private sector pensions maylead to further reductions in the effective age of retirement.

116. There are limits on the effectiveness of public policy to achieve certain outcomes. Many of thefactors affecting the retirement decision of individuals and couples, such as employer hiring and firingpractices, prior growth in living standards and asset accumulation, preferences for leisure and the healthstatus of those approaching retirement, are not within the direct control of government. However, publicpolicy can adapt to influence incentives at the margin and remove any perverse subsidies or incentives thatare currently provided.

117. This paper has largely documented the directions of recent pension reforms in OECD countries.Other countries are still in the process of determining the nature of desired reforms. What remains to beseen is whether these reforms will turn out to be adequate and achieve their desired outcomes.

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Table 1: Public flat-rate pension programmes in Member countries

Country(1)

Pensionableage

Eligibility requirement(for full pension) (2)

Amount of benefit (full pension,unless otherwise indicated) (3)

Rate ofcontribution (4)

State Subsidy Supple-ment (5)

Australia(1908*)

65 (M)61 (W) (Jul.1997)

10 yr continuous residence(5 yr continuous residence if totalyears exceed 10) (income/asset-tests)

A$ 173.90 a week (for single)A$ 290.10 a week (for couple) (Mar.1997)(27.4%*)

None All cost Yes (means-test)

Austria 65 (M)61 (W)

(income-test) Amount to raise pension to 7,887 schillings a monthfor individuals, 11,253 schillings for couples, plus840 schillings per child(30.5%)

None All cost

Belgium 65 (M)61 (W)

(income-test) BF 246,076 a year (for single)BF 328,098 a year (for couple) (Aug.1997)(28.7%*)


Canada(1951)

65 40 yr residence after age 18(income-test)

C$ 405.12 a month (Sept.1997)(14.4%)

None All cost Yes(income-test)

Czech Republic 65 (income-test) Up to 2,460 crowns a month (Jan.1995)(36.0%)

None All cost

Denmark(1891*)

67 40 yr residence between 15 and 67(income-test)

3,810 kroner a month(n/a)

None All cost Yes(income-test)

(ATP, for wage earnersonly)(1964)

67 Having paid contributions from 1964 (theyear when the scheme was introduced)

14,500 kroner a year for those who have paid fullcontributions(n/a)

Up to 894 kroner a year(ip)Up to 1.788 kroner ayear (er)

None

Finland(1956)

65 40 yr residence(other-benefits-test)

2,140 - 2,547 marks per month, according tomunicipality, marital status, other income received,etc.

(24.5%)

None (ee)Up to 20.4% (sp, as of Jan.1996)2.4-4.9%(er, private)3.95% (er, public)

about 36%(as of Jan.1996)

Yes(income-test)

France (6)(1941*)

65 (means-test) Up to a basic minimum (41,196 francs a year)

(45.4%*)

The fund for thisscheme is largelyfunded by the GeneralSocial Contribution(3.4% of 95% income).

Much of the taxeson alcohol andnon-alcoholicdrinks finances thefund for thisscheme.

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Table 1: Public flat-rate pension programmes in Member countries (continued)Country(1)

Pensionableage





Greece(OGA: for agriculturalworkers)(1961) (7)

65 • 25 years of employment in agricultureor other rural activities• Not in receipt of a social securitypension

34,000 drs/month

(15.8%)

None All cost Yes (fordisabilities)

(For non-insured)(1982)

65 • No household member should receivea social security pension• Family income should be no higherthan the equivalent of an OGApension.

34,000 drs/month

(15.8%)

None All cost Yes (fordependentmembers andfordisabilities)

Hungary 60 (M)56 (W)

(means-test) 80% of the minimal old-age pension(The amount of minimal pension is 40% of thenet average earnings.)(n/a)

None All cost

Iceland(1909*)

67 At least 3 years residence at ages16-66

Up to IKr 13,640 a month(n/a)

None (ip)3.88-6.28% (er)

Remaining costs Yes (income-test)

Ireland(1908*)

65 (retirement)66 (old-age)

Insurance coverage before age 56or 57, 156 weeks of paidcontribution, etc. (Maximum pension --yearly average of 48 contributions, paidor credited from date of entry;Minimum pension -- average of 24, ifretired at age 65; average of 20, ifretired at age 66)

Up to £Ir 75.00 a week(weekly allowances paid for adult and childdependants)

(29.0%)

5.50% of coveredweekly earningsplus some addition (ip)5.0% of coveredweekly earningsplus some addition (sp)Up to 12% (er)

Any deficit Yes (means-test)

Italy 65 (income-test) Up to 390,300 lire a month, with additional125,000 lire a month available for those who livealone with no other means of support or if spouseonly receives equivalent of the social pension.(18.1% for basic benefit)


Japan(1985)

65 40 years of contribution ¥785,500 a year

(23.5%)

¥12,800 a month (Apr.1997) (sp) (8)

1/3 of the paymentcost, plus adminis-trative cost

Luxembourg 60 Residence of at least 10 yrs during thelast 20 yrs (income-test)

The amount which will fulfil, with other income,the guaranteed minimum income set out by thestate (RMG) (n/a)

None All cost

Netherlands(1957)

65 Residence from age 15 through 64 1,542.21 guilders a month for single person

1,069.79 guilders for each of couple(37.2%)

15.40% of income (ip)None except for supplement (er)

Fund neededto bring lowbenefits up tosocial minimum

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Table 1: Public flat-rate pension programmes in Member countries (continued)

Country(1)

Pensionableage





New Zealand(1898*)

62 10 yrs residence(7 yrs since 50)

NZ$249.50 a week (single)NZ$368.66 a week (couple) (gross)(42.0%) * The full couple rate is income-tested.

None All cost

Norway(1936*)

67 40 yrs residence Base amount: 42,500 kroner (May 1997) (150% for aged couple)

(18.6%)

Up to 7.8% ofincome (ee)7.8-10.7% of income (sp)Up to 14.2% of wage (er)

Any deficits Yes (other-benefits-test)

Portugal(1980)

65 (income-test) 21,000 escudos a month(n/a)


Slovak Republic 60 (M)53-57 (W)

(income-test) 2,180 Sk (single)3,850 Sk (couple) (Jul.1997)(n/a)

None All cost

Spain(1991)

65 10 yrs residence from 16 to 65, withmore than 2yrs continuous residence atthe time of application (means-test)

Decided annually by the Law on the General State

(n/a)

None All cost

Sweden(1962)

65 40 yrs residence (or 30 yrs pensionpoints)

SEK 34,245 (single)SEK 28,003 (married) (1998)

(15.4%)

None (ee)6.83% (er)6.83% of assessableincome (sp)(1998)

About 25% ofcost

Yes (other-benefits-test)

Switzerland 65 (men)62 (women)

(means-test) Up to SFR 28,488 (for a single person residing in aninstitution)Up to SFR 47,760 (for a couple residing in an institution)(43.5%*)

None All cost

Turkey(The law 2022: 1976)

65 (means-test) TL3,201,000 (1.5 times for those who married) (1998)(n/a)

None All cost

United Kingdom (9)(1946)

65 (men)60 (women)

50 weeks of paid contributions orequivalent (The amount of baseearnings varies)

Up to £62.45 a week

(19.9%)

2% -10% (ee)£6.15 a week plussome addition (sp)3%-10% ofemployee’s totalearnings (er)

None Yes (means-test)

(Non-contributoryretirement pension)(1971)

80 Ineligible for contributory pensionResidence in the UK for the last 10years

60% of the above rate None All cost Yes (means-test)

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Table 1: Public flat-rate pension programmes in Member countries (continued)

Country(1)

Pensionableage





United States 65 (income/asset-tests) Up to $470 (single)Up to $705 (couple)(21.9%)


Source: Social Security Programs Throughout the World - 1997 (Social Security Administration, US), country responses for “Caring World” synthesis questionnaire, etc.* All of the items are as of 1 January 1997, unless otherwise indicated.* The above schemes are distinguished from minimum benefits by public earning-related schemes that are employed in some countries and described in Table 6.2.* In some countries, such as Poland, break-down of the benefit explicitly consists of flat-rate portion (“social part”) and earnings-related portion (“individual part”), with the

former serving as a similar scheme of flat-rate basic pension scheme. However, that is not included in the above chart because it is not an independent system for incomemaintenance and is considered to be the same as the lower limit of pension benefit which is decided implicitly in relation to the lower limit of income which is covered andcontribution is imposed for.

* Some countries such as the UK collect a single rate of contributions which combines flat-rate benefits and earnings-related benefits.* Detail on the specific type of means-testing used (e.g., income/assets/other benefits) is included above where information has been made available. (In other cases, the term

“means-test” is used.) With an “income-test,” the scope of income is usually the total amount of income, but in some countries it may be more restrictive to only encompassearnings, for example. “Other-benefits-test” refers to benefit payments from other tiers of pension programs. In addition, the degree of severity or generosity of the tests canvary significantly from country to country, which is not reflected in the table.

(1) The number in the bracket indicates the year when the current scheme was established, or when the first scheme was introduced ( with asterisk).(2) Other than a certain length of residency in the country or contribution to the scheme, many countries require particular residency status, such as citizenship or permanent

residency status. -- This chart classifies reduction of benefit for relatively rich elderly as means test, though some of them are not explicitly referred as such in the country which has the system.(3) Figures in the brackets indicate the percentage of the amount of the benefit (for single when specified) against the average annual wage (1995, local currency -

manufacturing. The data with asterisk is calculated with the data in 1994 for the average income.)(4) Basis of contributions is “earnings” in case of insured persons/employee/self-employed persons, “payroll” for employer, unless otherwise indicated. -- (ee):employee / (er): employer / (sp): self-employed persons / (ip): insured persons(5) “Supplement” is provided in case the overall income level of a person is certifiably low (income-test) in some country, or for particular purposes (for house rent, expenses in

living in remote areas, etc.) in others.(6) France has a 2 -tier flat-rate scheme (AVTS(AVTNS) for the elderly not eligible for contributory scheme, and a supplementary benefit which covers all the elderly to raise

their income level to the basic minimum).(7) This scheme is to be gradually phased out over the next 10 years as a new contribution-related scheme is phased in.(8) Only self-employed persons have to pay the contribution explicitly for the basic pension; in case of other enrolees for other earnings-related schemes such as Employees’

Pension, the contribution to the scheme implicitly includes the portion for the basic pension.(9) April 1997.

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Table 2: Public earning-related pension programmes in Member countries

Country

(1)

Coverage of theProgram (2)

PensionableAge (standard)

Eligibility Requirements

(3)

Amount of Benefit (Maximum/ Minimum Benefit)

Rate of Contributions

(4)

Coverage ofState Subsidy

Austria(1956)

Coverage:(a)• Special systems for public employees, self-employed persons, etc.• Lower earnings limit for coverage of employee

65 (M)60 (W)

At least 180 months ofinsurance coverage in the last30 years or 180 months ofcontribution

1.83% of average earnings inbest 15 yrs for each of first 30insurance yrs, plus 1.675% foreach insurance yr from 31-45

• Maximum limit of earnings in calculating benefits

Max: 80% of averagecovered earnings

10.25% (ip)12.55% (er)

• Maximum limit of earnings in calculating contributions

Any deficits

Belgium(1967)

Coverage: (a)• Special systems forpublic employees, self-employed persons, etc.

65 (M)61 (W)

45 years (M) or 41 years (W) ofcoverage

Based on the salary earnedduring the recipient’s workinglife and on the length ofworking career

Max: 60 % (75 % forcouple) of averagelifetime earnings

7.5% (ip)8.86% (er)

Annual subsidies

Canada(Canada PensionPlan) (1965)

Coverage: (b)• Casual employment,brief agriculturalemployment, etc. areexcluded fromcoverage.• Lower earnings limit for coverage (5)

65 Having made at least one year ofcontribution

25% of average coveredearnings

• Maximum/minimum limit of earnings in calculating benefits

Max:C$736.81 a month

3% (ee)6% (se)3% (er)

• Maximum/minimum limit of earnings in calculating contributions

None

Czech Republic(1906*)

Coverage: (b) 60 (M)53-57 (W)

At least 25 years (at year of age 65)of insurance• Substantial limitation of work isordinarily needed during the first 2yrs after the retirement age.

920 crowns plus earnings-related portion of 1.5% ofaverage indexed earnings foreach yr of insurance after 1985• Maximum limit of earnings in calculating benefits

Min: Basic flat rateplus 770 crowns

6.5% (ip)19.5% (er)

Any deficit

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Table 2: Public earning-related pension programmes in Member countries (continued)

Country

(1)




(3)



(4)


Finland(TEL)(1961)

Coverage: (a)• Special systems for public employees,self-employed persons,etc.• Lower earnings limit and minimum employment period for coverage of employee

65 40 years coverage• Retirement from coveredemployment

1.5% (2.5% for years at age 60or older) of average pensionableearnings times years ofcoverage until age 65• Pensionable earnings arecalculated by modifyingaverage earnings with a certainformula.

Full pension when thecoverage lasts 40years from age 23

4.5% of taxable income (ee)9.46% to 25.34% (er)


The portion forself-employed andfarmers notcovered by theirown contributions

France(Régime Général)(1930*)

Coverage: (a)• Special systems for public employees,self-employed persons,etc.

60 At least 150 quarters ofcoverage

50% of average earnings in 25highest years (in 2008)• In the meantime, the year is increasing from 11 (‘94) to 24 (2007).


Max: 50% ofmaximum earningsfor contribution

Min:38,524.90 francsper yrif have 150quarters ofcoverage

6.55% of pensionableearnings + GeneralSocial Contribution of3.4% of 95% income (ip)8.2% of covered earnings plus 1.6%of total payroll (er)• Maximum limit of earnings in calculating contributions

Variable subsidies

(ARRCO,Association desrégimes de retraitescomplémentaires)

* There are othercompulsoryoccupationalschemes such asAGIRC.

Coverage: (b)*Compulsory for “non-cadre” personnel as wellas “cadre” personnel,some farm workers, etc.

• Special systems forpublic employees, etc.

65 (60 whenthe require-ments forRégimeGénéral(minimumcontributions,etc.) arefulfilled)

Retirement (Beneficiaries can takeup gainful employment with certainconditions)

(Defined-contribution scheme)Acquired pension points(accumulated annually)multiplied by current pointvalue

Average: 1,316 FF(monthly: 1994)

Compulsory portion: 6.875% (Theratio between employer/employee is3:2.)(1998: will be 7.5% in 1999)

Germany(1957)

Coverage: (b)*• Special systems forpublic employees, self-employed persons, etc.

65 (M)60 (W)

At least 5 yrs coverage Individual “earning points”related to average earnings andthe age at the beginning of thepension multiplied by the actualpension value

Target rate:About 70% of currentaverage netincome whencompleted 45working years

10.15% (ee)18.6% (sp)10.15% (er)• Maximum limit of earnings in calculating contributions

Annual subsidy ofabout 20 % of totalcost of pensioninsurance

AWP 3.4

38


Country

(1)




(3)



(4)


Greece(IKA)(1934*)

Coverage: (b)*• Special systems forpublic employees,agricultural workers,etc.

65 (M)60 (W)

At least 15 years of coverage 80% of average earnings of last5 years for 35 years ofcoverage


(For those entering the labourmarket after 1993, the rate is60% and the maximum limit ofcalculation is not applied.)

Max: Earnings onwhich pensionhas beencalculatedMin: 86,940drachmas amonth, increased bydependants’supplement

6.67% (ee)13.33% (er) (d)• Maximum limit of earnings in calculating contributions (notapplicable to those entering thelabour market after 1993)

Any deficit, plus10% of earnings ofthose entering thelabour market after1993

Hungary(1928*)

Coverage: (b) 60 (M)56 (W)

At least 20 years ofemployment

(For 20 yrs coverage)53% of net earnings during best4 year period in 5 yearspreceding retirement. Earningsof the next 15 yrs aredifferently evaluated for fullbenefit.• There are other variations according to coverage years and amount of earnings.

Min: 6,400forints amonth

6% of gross earnings (ip)24.5% (er)

Any deficit

Iceland(1909*)

Coverage: (b) 67 40 yrs residency Depends on paid contributions 4% (ee)10% (se)6% of employee’s wages (er)

None

Italy(Old-age Pension)(1919*)

(6)

Coverage: (a)• Special systems for industrial managers, civil servants, self- employed farmers, etc.

(Old system)63 (M)58 (W)

(New system)57-65

(Old system)At least 18 years of coverage

(New system)For retirement before 65, at least 5contributory years and earnedpension 1.2 times equivalent to thesocial allowance. Otherwise, 40years of contribution enables theprovision regardless of age.

(Old system)Coefficient (0.9-2) times salaryand years of service

(New system)Amount of accumulatedcontributions times coefficient(4.72 (age 57)-6.136(age 65)) • Maximum limit of earningsin calculating benefits (for thenew system)

Min: 685,400lire a month

33 % (for wage workers in public and private sector: includes the portion for family allowances)20% (sp)10% (others)* Those rates are used to calculatethe benefit amount. The rate forcollection is decided differently.• Maximum/minimum limit of earnings in calculating contributions (Maximum limit is for the new system)

Any overalldeficit and means-tested allowance

AWP 3.4

39


Country

(1)




(3)



(4)


Japan(Employees’Pension Insurance)(1941 )

Coverage: (a)• Special systems for public employees, private school teachers, etc.

60 (M)59 (W)

At least 25 years of coverage (1-0.75)% of indexed monthlywages times the number ofmonths of coverage(7)• Minimum/minimum limit ofearnings in calculating benefits

8.675% (ip) (d)8.675% (er) (8) (9)


Cost ofadministration

Korea(National PensionScheme)(1988)

Coverage: (b)• Special systems forpublic employees,private school teachers,etc.

60 At least 20 years of coverage 2.4 times the sum of averagemonthly earnings of all insuredpersons in the preceding yearplus some additions for eachinsured year in excess of 20

3% from 1998 (ee)6% from1998 (er)

(sp): 3% (1995-2000) 6% (2000-2005) 9% (2005-) (d)

Partial cost ofadministration and flat-rate subsidy (W2,200)for farmersand fishermen

Luxembourg(1987)

Coverage: (b)• Special systems for railway and public employees

65 At least 120 months ofcoverage

Lump-sum of 9,711 francs permonth if insured for 40 yearsplus increments equal to 1.78%of adjusted lifetime coveredearnings per yr of completeinsurance coverage

• Maximum/minimum limit ofearnings in calculating Benefits

Max: 183,920francs permonth

Min: 39,727francs permonth ifinsured for 40years

8% (ip)8% (er)


8% of earnings

Mexico (10)(RCV)(1943)

Coverage: (b)*• Special systemsfor petroleumworkers, publicemployee, etc.

65 At least 500 weeks ofcontributions

35% of average earningsduring last 250 weeks ofcontributions, plus 1.25% ofearnings per year ofcontribution beyond 500 weeks• Maximum/minimum limit ofearnings in calculating benefits

Max: 100% ofearnings if 2,000weeks ofcontributions or moreMin: 100% ofminimum salary inthe Federal District

2.075% (ip)5.810% (er)


0.415% of payroll

AWP 3.4

40

Table 2: Public earning-related pension programmes in Member countries (continued)Country

(1)




(3)



(4)


Norway(1936*)

Coverage: (b)• Special systems for railway, public employees, etc.• Lower earnings limit for coverage

67 20 years of coverage(increasing to 40 years)

42% of the current baseamount multiplied by theenrolee’s average annualnumber of pension points in 20years with the most points.• Minimum limit of earnings incalculating benefits

Full pension with 20years of coverage

Up to 7.8% of income (ee)7.8-10.7% of income (sp)Up to 14.1% of wage (er)

Any deficit

Poland(General SocialInsurance Fund)(1982)

Coverage: (b)*• Special systems for police, and independent farmers

65 (M)60 (W)

At least 25 years (men) or 20 years(women) insurance.• Partial retirement necessary.

24% of average national salarywith some earnings-relatedaddition which reflects thecoverage yrs (1.3% of workersearnings base multiplied by thenumber of contributory years(0.7% for the periods whencontribution is exempted))• Maximum limit of earnings in calculating benefits

Min: 274.02 zlotys amonth

None (ip)45% (er)

None

Portugal(Generalcontributory schemerun by IGFSS)(1935*)

Coverage: (b)• Special systems for miners, railway workers, etc.

65 (M)(Pensionableage for womenwas 62 in1993, and willbe65 in 1999.)

At least 15 years ofcontribution (120 days ofcontribution at least by year).

2% of average annual earningsduring highest 10 of last 15years times year of insurance.

Max: 80% ofaverage earnings

Min: 30% ofaverage earn-ings or 30,100escudos,whichever ishigher

11% (ee)25.4% for mandatorycoverage, 32% forvoluntary coverage (sp)23.75% (er)

Subsidy for socialpension and healthcare

Slovak Republic(Pension Fund)(1906*)

Coverage:(b) 60 (M)53-57 (W)

At least 25 years of employ-ment (20 years for women)• Substantial retirement usually necessary

50% of average earnings duringhighest 5 of last 10 years plus1% of earnings per year ofemployment between 26 and 42years


Max: 5,650 crowns amonth for all pensions

Min(with full career):550 crowns a monthplus amount necessaryto bring total monthlyincome to 2,507crowns

5.9% of revalued earnings (ee)26.5% of revaluedearnings (sp)21.6% (er)

Any deficit

AWP 3.4

41

Table 2: Public Earning-related Pension Programmes in Member Countries (continued)

Country

(1)




(3)



(4)


Spain(general regime)(1919*)

Coverage: (a)• Special systems for agricultural workers and small farmers, self- employed, etc.

65 At least 15 years ofcontribution, including 2 yearsin last 8 years.• Retirement necessary.

60 % of benefit base plus 2%per year of contribution over15 years


Max: 100% of benefitbase with 35 yearscontributionMin: 54,825 pesetas amonth for single

4.7% of covered earnings (ip)23.6% of earnings (er)


Annual subsidy

Sweden(ATP)(1960)

Coverage: (b)• Lower earnings limit for coverage

65 30 years coverage 60% of the current baseamount multiplied by enrolee’saverage annual number ofpension pointsin 15 years of most points.• Maximum limit of earnings in calculating benefits

Full pension for 30 yrsof coverage

1% of assessable income (ee)13.0% (er)


None

Switzerland(AVS)(1948*)

Coverage: (b) 65 (M)62 (W)

Contribution during allyears from 21

Flat-rate portion plus earnings-related portion based onannual income (2 differentformula according to theincome level)

Max: 1,990 francs amonth

Min: 995 francs amonth

4.2% (ee)7.8% (sp)4.2% (er)* Also covers the risk ofsurvivorship

Annual subsidiescovering about 20% ofthe old age benefit

Turkey(Wage earnersscheme by SocialInsurance Institution )(1945)

Coverage: (a)• Special systems for public employees, self-employed people, etc.

55 (M)50 (W)

1) At least 5000 days of contributions2) 15 years of coverage and at least 3,600 days of contributions3) 25 (M) or 20 (W) years of coverage and at least 5,000 days of contributions

(For persons who fulfilled theeligibility requirements) 60-85% of average indexedearnings during last 10 years(1998)• The above beneficiaries alsoreceive “social contribution”of 4,690,000 TL a month.• Maximum/minimum limit ofearnings in calculatingbenefits

Max: 75,209,485 TLa month

Min: 39,726,400 TL amonth

(January 1, 1998)

9% (ip)11% (er)

• Maximum/minimum limitof earnings in calculatingcontributions(d)

Social contributions(4,690,000 TL a monthfor one pensioner)Any deficits

United Kingdom(State Earnings-Related PensionScheme) (11)(1975)

Coverage: (a)• Lower earnings limit for coverage• “Constact-out” ispossible when theinsured personbelongs to a privatescheme that fulfillscertain requirements

65 (M)60 (W)

Contributions paid as anemployee on earningsbetween the lower and upperearnings level in any tax yearfrom April 1978

25% of average earnings overnotional working life of best20 years

2% - 10% (ip)£6.15 a week plus someaddition (sp)3% - 10% of employee’stotal earnings (er)• Maximum/minimum limitof earnings in calculatingcontributions (e)

None

AWP 3.4

42


Country

(1)




(3)



(4)


United States (Old Age,Survivorship, andDisability Insurance)(1935*)

Coverage: (b)• Casual agricultural employment, domestic employment, limited self-employment, etc. are excluded from coverage.

65 At least 40 quarters ofcoverage

Average earnings are calculatedover a certain period. They aredivided into 3 parts accordingto the amount and multiplied bydifferent coefficients.


Max: $1,326 amonth

6.2% (ee)12.4% (sp)6.2% (er)

• Maximum limit of earnings in calculating contributions (e)

Cost of specialmonthly old-agebenefit for personsaged 72 before1968

Source: Social Security Programs Throughout the World - 1997 (Social Security Administration, US) , Corporate Pension Schemes in the World: Recent trends and developments (in Japanese) (ed. by Pension Fund Association, Japan, 1996), and country responses to “Caring World” synthesis questionnaire. Information also comes from Syntheses: Suivi Annuel Des Retraites

(réaultats 1995) (INSEE, France) as well as the Internet home page of Association des régimes de retraites complémentaires, France.* Information is as of Jan. 1997, unless otherwise indicated.* Recent trends of changing pensionable age are described more in details in Table 6.10.* Those pension programs are often managed by semi-autonomous institutions and funds which are usually self-governing with bipartite or tripartite boards; otherwise, the governmental organs directly manage the program.

Notably, ARRCO (and other compulsory occupational pension schemes) in France is included in this table because, in spite of its origin as a private scheme, it has been integrated in the System of National Accounts as apublic scheme, with PAYG funding and national-level financial co-ordination.

(1) The number in the brackets indicates the year when the current scheme was established of when the first scheme was introduced (with asterisk). Also, the name of the scheme referred to in the table is indicated.(2) Coverage: (a): employees / (b): (a) + self-employed people / “(b)*” means that only the specific portion of the self-employed people are eligible for the program.(3) For full entitlement unless otherwise indicated.(4) Those countries with (d) has a certain amount of surcharges in the contribution rate, as well as certain exceptions for the pensionable age and benefit amount in some cases, for some industries where the work is deemed

“arduous” or “unhealthy.” Also, there are some cases such as in Slovak Republic and Spain where earlier retirement or other favourable treatments are granted without surcharge.-- In terms of rates of contributions, “ip” is for insured persons, “ee” for employee, “er” for employer, and “sp” for self-employed people.-- Basis of contribution is “earnings” in case of insured person/employee/self-employed persons, “payroll” for employer, unless otherwise indicated.-- Those contributions are usually not collected only for retirement pension; the fund is usually used for disability and survivors’ benefits. The countries

with (e) includes funds for health services for the elderly (e.g. US) or whole population (e.g. UK)-- Some countries such as the UK collect a single rate of contributions which combines flat-rate benefits and earnings-related benefits. In the same way, the General Social Contribution, imposed in France, funds non-

contributory flat-rate pensions and other benefits.(5) Canada Pension Plan (CPP) does not cover the residents in the Province of Quebec; they are covered by Quebec Pension Plan, whose eligibility and benefit rules are basically the same as those of CPP.(6) Italy introduced a new system in 1995, which covers new entrants to labour market from 1996 (fully) and those who had contributed to the old system for less than 18 years at the time of the reform (partially: coverage from

1996 is based on the new scheme). Therefore, “old system” and “new system” are both described in the Table. In addition, about “seniority pension,” see Table 6.10.(7) In addition to this earnings-related benefit, flat-rate pension is paid out of the same scheme (1,625 yen times (1.875-1.000) times the number of the month of coverage) to its enrolees, as well as additional allowances for

those having spouse and children. Those ratios with brackets are decreasing according to the beneficiaries’ date of birth. (Note: This special payment continues until the pensioners become eligible to the flat-rate basicpension at their age 65.)

(8) On top of the contributions, employees and employers pay 0.5% each from “bonus,” or periodical lump-sum payment of wage/salaries.(9) A certain portion of the contributions is used to finance the flat-rate basic pension.(10) Mexico introduced a new mandatory private pension system in July, ‘97. The old system still remains and the insured people can enrol in either of them. The new scheme imposes different contribution rates (1.125%

specifically for old-age benefit (ip) and 2% - 3.15% (er)).(11) April 1997.

AWP 3.4

43

Table 3: Replacement rate of public pension programmes

Country DescriptionAustralia As there is only a flat-rate scheme which is need-based, there is no target replacement rate. However, the maximum payment rate is equivalent to 25% male average

total weekly earnings for a single person and 40% for a couple.

Austria At maximum, 80% of average covered earnings are covered by earnings-related pension.(*) There is no target replacement rate.

Belgium A target replacement rate is 60% for single persons. In case of married couple, this rate increases to 75% after fulfilling some requirements.

Canada A target replacement rate (statutory) is 25% for individuals (earnings-related scheme only). Combined with flat-rate pension, about 40% (53% for one-earner couple)is currently insured.

Czech Republic Current old-age pension benefit is composed of 920 crowns plus earnings related portion of 1.5% of average indexed earnings for each year of insurance after1985.(*) (The base amount is 1,260 crown from 1 Aug.1997.) No target replacement rate is provided.

Denmark A current replacement rate is nearly 80% for single, a little over 50% for married or cohabiting couple, in 1994, for basic and supplementary pension inclusive. (a)No target replacement rate is provided.

Finland A target replacement rate is 60% of earnings for 37-42 years of coverage. In practice, an actual replacement rate is usually 40-50%. As to public sector, the targetrate is 66%.

France Depending on age and duration of insurance coverage, 25-50% of average salary for the best 25 years, as of 1 Jan. 2008. In the meantime, the length of the best yearsvary between 11 and 24 years.(*) A net replacement rate (public and occupational/compulsory schemes inclusive) in the private sector in 1993 is about 78%. (b)

Germany A target replacement rate is about 70% after insurance period of 45 working years. This is envisaged to be reduced to 64% in about 30 years.

Greece 80% (basic pension for employees (IKA): 60% for those entering the labour market after 1993) and 20% (supplementary pension for employees (IKA-TEAM)) ofpensionable earnings are ensured after 35 year of insurance.

Hungary There is no target replacement rate. The rate varies according to the covered years, etc., but currently 55-60% of national average earning is prevalent. Because of therecent reform, this rate would be 66% (for old system) or 48.8% (for new system) to the gross average earnings from 2013.

Iceland A current replacement rate is a little over 80% in 1994, for basic and supplementary pension inclusive. (a)

Ireland As there is only a flat-rate scheme, there is no target replacement rate. Currently the social insurance pension represents 26% of national average earnings for a singleperson and 45% of national average earnings for a couple.

Italy Prior to the ‘95 Reform, maximum replacement rate could be 80% (2% for each contribution year, with full-benefit for 40-year contribution). After the reform, areplacement rate is expected to be about 60%.

Japan A replacement rate is 68% of covered earnings. (c)

AWP 3.4

44

Table 3: Replacement rate of public pension programmes (continued)

Country DescriptionKorea A target replacement rate is 70% (40%) for 40 (20) years coverage (respectively).

Luxembourg There is no target replacement rate. An old-age pension is made up with flat-rate elements of 1/40 for every year (maximum of 40) and of proportional elementsrepresenting to 1.78% of total taxable income taken in to account.

Mexico A current replacement rate is 35% of average earnings during last 250 weeks of contribution, plus 1.25% of earnings per year of contribution beyond 500 weeks. (*)

Netherlands Benefits of public pension are related to net minimum wage: 100%, 90%, 70% for couple, single parents and single persons respectively.

New Zealand As there is only a flat-rate scheme, there is no target replacement rate. The current scheme provides a retired couple with maximum payment a benefit equivalent tojust under 70 % of net average earnings.

Norway A current replacement rate is nearly 70% for single, a little less than 60% for married or cohabiting couple in 1994, for basic and supplementary pension inclusive. (a)There is no target replacement rate

Poland A current replacement rate is 24% of average national salary, plus 1.3% of worker’s earning base multiplied by the number of contribution years (and 0.7% ofworker’s earnings base multiplied by the number of credit years (e.g. for bringing up children)). (*) No target replacement rate is provided.

Portugal The amount of retirement pension corresponds to 30% (minimum) to 80% (maximum) of average earnings. Non-contributory supplement is added when thecalculated benefit amount is less than the minimum rate.

Slovak Republic A target replacement rate is 40% of previous incomes from which the insurance fee was paid (though calculation basis could be different from actually earnedincome).

Spain A replacement varies according to the length of working years, amount of salary, etc. Currently, for example, a pensioner with dependent spouse, having had averagesalary and worked for 35 years, receives 90% of income (net replacement rate).

Sweden A current replacement rate is nearly 70% in 1998, for basic and supplementary pension inclusive . There is no target replacement rate.

Switzerland There is no target replacement rate. A basic pension scheme and an occupational pension scheme (private but compulsory) together ensure currently about 60% ofgross annual income.

Turkey A target replacement rate varies from 60% to 100% depending on the schemes. That also varies based on the period of insurance.

United Kingdom As to earnings-related schemes, 25% of average earnings over notional working life of best 20 years is ensured. This is planned to be reduced to 20% of averageearnings over entire working life, for pensioner reaching pensionable age between April 1999 and April 2009. (*) There is no target replacement rate.

United States There is no target replacement rate. Historically, about 40% of prior income has been ensured.

Source: Country responses to “Caring World” synthesis questionnaire, and Social Security Programs Throughout the World - 1997 (Social Security Administration, US)* The information with asterisk is taken from the SSA report. Others are from national responses, unless otherwise indicated.(a): Social Security in the Nordic Countries; Scope, expenditure and financing 1994 (Nordic Social Statistical Committee, 1996), p76.(b): SESI. échantillon interrégimes de retraités. reproduced in Syntheses: Les Revenus Sociaux 1981-1995 (Institute National de la Statistique et des Études Économiques, 1996)(c): A current standard method of calculation is different in Japan; “Bonus,” or a lump-sum payment usually paid a few times in a year, was not a basis on

which contribution is imposed (though ‘94 reform has introduced the 1% contribution on the bonuses, split between employer and employee.), nor isincluded in the usual calculation of replacement rate. When the method is adjusted according to the ILO standard, it becomes 55.7% (1995).

AWP 3.4

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Table 4: Funding arrangements of selected public pension programmes

FinancialArrangements

Comparison ofaccumulated assetsto current annualpayment

Recent change ofAmount

Projected change of amount Recent/Projected Reforms Note

Canada

PAYG with“buffer” fund

2 .44 years (‘96)

The ratio is projected to decrease to 1.54 yrsby 2030, according to the ‘93 estimate.

1997Funded portion increasesfrom 2 yr to 5 yr worth of totalyearly payment, withadvancing a current scheduleof raising contribution rates.

Denmark(ATP)

Fully-funded(defined-contribution)

80.6 → 116.3(‘90) (‘94)

(bil.kroner)Germany(former WestGermany only) PAYG

0.05 year (‘96)

38,697→14,204

(‘93) (‘96)

(mil. DM)

JapanPartially funded 5.4 years (FY‘95)

76.9 → 111.8 (FY’89) (FY’95)

(tril.yen)Sweden

Partially funded 5.1 years (‘98) 320,064→639,226 (‘87) (‘98)

(mil.kronor)

New system (from 1999)allocates 2.5% of contributionspecifically to fundedmanagement.

United Kingdom

(1)PAYG 0.06year (FY’94) 4,897 → 1,008

(FY’92) (FY‘95)(£ mil.)

United States

(2) PAYG with“buffer” fund

1.48 years (‘94)155,063→413,460 (‘89) (‘94)

($ mil.)

It is expected that, under the current formula,the Social Security Old Age and SurvivorsTrust Fund will have payroll revenue whichfall short of obligations in 2011, and will beexhausted in 2034.

(1) The numbers used as “accumulated asset” and “current annual payment” are “Excess of Receipts over payments” and the sum of expenditures for retirement pension, widows benefit and invalidity benefit,respectively.

(2) The fund for disability benefit is independent and excluded from the calculation.Source: Turner, J. and Noriyasu Watanabe (1995), Private Pension Policies in Industrialised Countries , W.E. Upjohn Institute for Employment Research, Kalamazoo, Michigan: Social Security in the NordicCountries: Scope, expenditure and financing 1994 (Denmark), Rentenversicherungsbericht (Germany), Annual Report on Health and Welfare (Japan), Social Insurance Statistics (Sweden), Social SecurityStatistics (the UK), Social Security Bulletins (the US). Information also comes from country responses to “Caring World“ synthesis questionnaire, and the internet homepage of the Department of Human ResourcesDevelopment, Canada.

AWP 3.4

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Table 5: Selected private pension programmes for employees

Country Name of theprogramme

Establishment(1)

Age of eligibilityfor benefits

Contribution Benefit Funding Tax treatment Regulation/security measures

Relation withpublic pension

Australia Superannuation Voluntary/Compulsory (91.5%: 1993)*A basic portionis compulsoryunder theSuperannuationGuarantee (SG)

55 (will be 60 by2025) to receivefull tax-assistedbenefits

(SG)6% (employer,will be 9% in2002)

DB or DC98 % of all thesuperannuationfunds aremanaged on DCbasis.

Privateschemes fullyfunded. Someschemes forpublicemployees arePAYG.

(A$198bil., 1995)

Tax concessions 1999Introduction of newsuperannuationregulations, keyresponsibility ofinsurance andsuperannuationcommission

Supplement largelyto means-tested pension, willreplace publicpension for thosewith largepayments

Canada Registered PensionPlans

Voluntary(45%, 1993, allemployer-sponsoredpension plans)

Usually 65 Majority:(employee)5% (privatesector)7-9% (publicsector)

DB or DC* DB schemes aremajority, but DCschemes areincreasing rapidly.

Funded

($ 272,387mil. : 1988)

Tax concessions “Prudent man”concept forportfolio regulations

Supplement topublic pensions

Denmark Labour MarketPension

Compulsory(based on thecollectiveagreements)(65% in 1994)

60 Majority: 12%(for workers withintermediateeducation)* Majority ofnew schemes(for workers atlow education)reaches 9 % in8 to 12 yrs.

DC Funded(20.1% ofGDP, 1993)

Tax concessions Regulation onasset allocation


AWP 3.4

47

Table 5: Selected private pension programmes for employees (continued)


Establishment(1)




Germany Regulatoryframework:“BetrAVG”

Voluntary(About 50%,without publicsector)

65, in principle Maximum taxexemption is8,610 DM forsingle person(employee)

DB or DC(More than 90% isbased on DB)

PAYG Tax concessions Insurance forpayment of benefitwas introduced in1974. Thisinsurance ismanaged by PAYGscheme.


Ireland Occupational andprivate pensionschemes

Voluntary(46% ofworkforce: 1995)

Almost 65 (men)64 (women)* average figure

Average:4.43% foremployee

DB or DC Funded inmost cases(46% ofGDP, 1996)

Tax concessions Minimum fundingstandard, disclosureof information, etc.


Italy ComplementaryPension

Voluntary The same asstatutory schemes

2% for employers2% for employees

DC or DB (self-employed)DC (employee)

Funded Tax concessions(taxable base:87.5% of totalannuity)

L 241/92L 335/95

Supplement to publicpensions

Japan Corporate pensionMajor schemes:* Employees’ Pension Funds (EPFs)* Tax Qualified Pensions (TQPs)

Voluntary Usually 60 EPFs:3.2-3.8% (splitbetweenemployers andemployees) forthe contracted-outportionOthers:No regulation

DB(Introduction ofDC is beingconsidered)

Funded

(44.7% ofGDP, 1993)

Tax concessions(EPFs andTQPs)

The Federation ofEPFs ensurespayment of thebenefits by EPFs to acertain extent.


New Zealand Superannuation Voluntary (23%, 1987)

As a generaltrend, the age islowering from65 to 60.

Majority (1990):4.1-5.0% (employee)0.1-5.0% (employer)* As for DCschemes, majorityof the employersdo not paycontributions.

DB or DC87% are DC in1990 (excludingGovernmentSuperannuationFund andpersonal savingplans)

Funded(In very rarecases basedon PAYG)

(NZ$ 11,093mil.in 1990)

No taxconcession(From 1987Reform)

“Prudent man”concept forportfolio regulations


AWP 3.4

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Table 5: Selected private pension programmes for employees (continued)


Establishment(1)




Sweden Industrins TilläggsPension (ITP) (forwhite-collar)

Särskild TilläggsPension (STP) (forblue-collar)

Compulsory(based on thecollectiveagreement)

65 5-20% (ITP)3.30%:’95 (STP)* for schemes managed by insurance

DB PAYG(“book-reserve”) orFunded(over 10%of GDP,’90,for fundedschemes only)

Tax concessions Schemes based on“book-reserve”management mustbelong thepayment insurancesystem.


United Kingdom Occupational pensionfunds

Voluntary (48%, 1991)

Mostly 65(60 for women)* 50-75 ispossibleaccording to thetax regulations.

Maximum taxexemption is17% of salary.(In 1991, 9.75%(employer), 5.5%(employee),on average)

DB or DC(Proportion of DCis increasing)

Full-funded(supported bytax system)

(79.4% ofGDP, 1993)

Tax concessions 1995 Pension Actguaranteed paymentto the 90% income, incase of fraud ormisappropriation)

* Contract-out* Supplement topublic pensions

United States Regulatoryframework:Employee RetirementIncome Security Act(ERISA) of 1974

Voluntary (58.8%, 1988)

Majority is 65.Most of othercases are 62and 60.

Maximum amountof taxexemption variesamongplans.

DB or DC(DC is promotedby favourable taxtreatments)

Full-funded

($59.1% ofGDP, 1993)

Tax concessions(2)

Benefits of DBschemes areensured by thePension BenefitGuarantyCorporation.


Source: Private Pensions and Public Policies (OECD, 1992a), Private Pensions in OECD Countries: The United States (1993a), New Zealand (1993b), Ireland (1994c), Canada (1995d),The United Kingdom (1997e), Australia (1997f). Supplementary Pensions in Denmark: A description of the future pension system (The Danish Labour MarketSupplementary Pension Scheme, 1995). Corporate Pension Schemes in the World: Recent trends and developments (in Japanese) (ed. by Pension Fund Association, Japan, 1996).Information also comes from the Ministry of Health and Welfare, Japan.(1) The number in the bracket indicates the proportion of coverage against the total population of employed persons.(2) Employee contributions are exempted from taxes when the scheme matches several requirements under the Internal Revenue Code and the Tax Reform Act (401(k) plan).

AWP 3.4

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Table 6: Examples of major personal savings programmes


Benefit and Eligibility Contribution Tax treatment Note

Canada RegisteredRetirement SavingPlans (RRSPs)

In principle, the saving can bewithdrawn for pension at age 60 -71.

Maximumcontribution is18% of incomeof the previousyear annually(tax deductible)

Contributiondeductible. Investincome not taxed.Taxes paid onwithdrawal.

In 1990, tax treatment forRRSPs was equalised withother corporate pensions,and maximum taxexemption was increased.

United Kingdom Personal Pension The plan can start providing pensionanytime for the ages 50 -75.

Maximumcontributionvaries (17.5-40%) accordingto income(tax deductible)


In 1992/93, 24% ofemployees were contractedout of the public earnings-relate pension withpersonal pension. Thiscontracting out waspromoted with rebate by thegovernment.

United States IndividualRetirementAccounts (IRA)

When withdrawn before 59 and 1/2,penalty tax of 10% usually applies.Distributions must commence byApril 1 of the calendar year followingthe calendar year in which theindividual reaches age 70 and 1/2.

Maximumcontribution is$2,000 per year(tax deductible)


1998 revision introducedpenalty-free earlywithdrawal with the reasonof college educationexpenses, first-time homepurchase with up to$10,000.

Source: Private Pensions and Public Policies (OECD, 1992), Private Pensions in OECD Countries: The Unites States (1993), Canada (1995),The United Kingdom(1997). Also information on IRA comes from Employees Benefit Research Institute, US, and on RRSPs from a country response from Canada.

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Table 7: Tax concessions for pension benefits and other income/savings

Concessions for Pensioners of Public Schemes Other Concessions for Aged PeopleAustralia Income Tax

• Benefits of Age Pension (funded by general taxation) are taxable.• Pensioner Tax Rebate (ensuring that a pensioner does not pay tax until private income exceeds the value of the pension and the income test free area)

Income Tax• Tax-rebate for low-income self-funded retiree phased in to provide same tax concession as for pensioners• Superannuation contributions with tax concessions (though there will be a tax surcharge of up to 15% on contributions by the wealthy)• Savings rebate (from July 1998) will apply to (undeducted) superannuation contributions, or net income receipt from savings and investment, or a combination of both, up to an annual cap of A$3,000. The full rebate will be A$450 a year in 1999-2000 income year.Capital Gains Tax • Concessions from Capital Gains Tax on the income received from selling the small enterprise for the reason of retirement

Austria Income Tax• Contributions to the scheme are tax deductible (for both employee and employer, including additional voluntary contributions), though benefits are taxed as earned income.• Pensioners Tax Credit of ATS 5,500 per annum• Only 25% of the pension secured by additional voluntary contributions is taxed.

Income Tax• Tax credit for extraordinary costs entailed by physical/mental disability (The elderly people are major beneficiaries of the credit. This credit is not available when the applicant receives such benefits as long-term care benefit (Pflegegeld), though special, partially lump-sum amounts for expenses for some chronic diseases or for some specific devices (such as wheelchairs) can still be claimed.)Contributions to Social Security Programmes• Retirees only have to pay social security contributions to the health insurance scheme. Moreover, the rates are smaller than those for younger persons.

Belgium Income Tax• Contributions to the scheme are tax deductible (for both employee and employer), though benefits are taxed as replacement income.• Pensioners are awarded of tax deduction, based on the number of dependants and the level of income.Contributions to Social Security Programmes• Other than “solidarity contributions”(imposed on pension benefits above certain amount), pensioners do not have to pay contributions to the social insurance schemes.

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Table 7: Tax concessions for pension benefits and other income/savings (continued)

Concessions for Pensioners of Public Schemes Other Concessions for Aged PeopleCanada Income Tax

• Benefit of Old Age Security basic pension (funded by general taxation) is taxable.• Guaranteed Income Supplement and Spouses Allowances are not taxable. (Old Age Security basic pension and Guaranteed Income Supplement are going to be merged, along with the Age and Pension Income Tax Credits, into non-taxable Senior Benefit from January 2001.)• Employer contributions to Canada Pension Plan (CPP) are tax deductible. Employee contributions are not directly deductible, but subject to a tax credit. Benefit of CPP is taxable.• Some provincial income-tested supplements to pensioners are also non-taxable.

Income Tax• Age Credit (deduction of “old age” amount from federal tax payable) -- The amount in full is Can.$3,482 in 1995. -- There is an income limit for the credit (Can.$25,921). The excess amount will also be a base for the claim of the credit reduced at a rate of 15%. The credit, or a portion of the credit, may be transferred from one spouse to the other in cases where one spouse does not require the full credit to reduce his/her tax to zero.• Pension Income Credit (Taxfilers with pension income from employer-sponsored pension or Registered Retirement Savings Plan annuity may claim a credit depending on the amount of the income. Can.$1,000 maximum.)• In case of annuities purchased with no tax-assisted savings, only the portion of investment earnings is taxable.

Czech Republic Income Tax• Contributions are tax deductible, and benefits are tax free.

Denmark Income Tax• Contributions to the ATP scheme are tax deductible (for both employee and employer). Benefits of the old-age pension (folkepension. funded by general taxation) and ATP pension are taxed as earned income. Supplementary benefits to pensioners are not taxable.

Property Tax• Tax related to owner-occupier housing is reduced by 50% for persons from age 67

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Concessions for Pensioners of Public Schemes Other Concessions for Aged PeopleFinland Income Tax

• Contributions to the scheme are tax deductible (for both employee and employer), though benefits are taxed as earned income with the exceptions of supplements (for a child or spouse, etc.) to the basic pension benefits.[Concession from tax on specific income deriving from pension benefit]• Pension benefit, when below the average amount, is subject to lesstaxation compared to other source of income of the same size. Whenabove the average, it is subject to more taxation than other source ofincome of the same size.[Concession from tax on income in general for the reason of being pensioners]• Pension income deduction, in municipal and state taxation, whichensures that no income tax is paid from the pension benefit in casethe pensioner has no other taxable income.

Income Tax• Tax allowance for the disabled (A rather large part of pensioners are entitled tothis allowance.)

France Income Tax• Contributions to the scheme are tax deductible (for both employer and employee), though benefits are taxed after deduction of allowances similar to those applied to salary.

Income Tax• Pension benefits from individual plans are normally partially taxed on a fixedscale, based on the pensioner’s age.

Germany Income Tax• Contributions to the scheme are tax deductible (for both employee (up to a certain amount) and employer).• Statutory pension benefits are only taxable for the portion which corresponds to the notional interest for the pension saving.• Civil servants’ pensions are fully subject to income tax except for base amount reduction ranging from 40% of the benefits to 6,000DM per calendar year.

Income Tax• Income from sources other than pensions is fully subject to income tax except for base amount reduction ranging from 40% of such income to 3,720DM per calendaryear.

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Concessions for Pensioners of Public Schemes Other Concessions for Aged PeopleGreece Income Tax

• Contributions to the scheme are tax deductible (for both employee and employer), though benefits are taxed as income.

Income Tax• Contributions to private saving schemes are tax-deductible. Maximum taxallowance: 200,000 drs/year or 15% of premium expenditure (whichever lower)• Presumptive taxation provisions do not apply to professionals over the age of 65who have been practising for at least 10 years.

Hungary Income Tax• Pension benefit is tax-free, because contributions to the scheme are taxed.

Iceland Income Tax• Pension benefits (including supplementary benefits) are taxable income.

Ireland Income Tax• Employer contributions to the social security scheme are in generaltax deductible, but employee contributions are not. Benefits areusually taxed as earned income.

• Employer and employee contributions to occupational and privatepension schemes and income from the investment of thecontributions are tax deductible up to certain limits. Benefits aretaxed, but part of the supplementary pension can be received as a taxfree lump-sum payment up to 1.5 times of final salary.• Other social security benefits from public authorities may be exempt from taxes.

Income Tax• Income Tax Age Allowance (£Ir400 for single/widowed persons and £Ir 800 for married couple)• Exemption limits for rent allowances become higher at the age of 55, 65, and 75.Contributions to Social Security Programmes• Those aged 66 or over do not have to pay contributions to the pension scheme,even if they are in employment/self-employment.

Italy Income Tax• Contributions to the scheme are tax deductible (for both employee and employer).• Benefits are usually taxed, except for disability benefits.Contributions to Social Security Programmes• Pensioners do not have to pay contributions to the Health Care Services out of their pensions.

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Concessions for Pensioners of Public Schemes Other Concessions for Aged PeopleJapan Income Tax

• Contributions to the scheme are tax deductible (for both employee and employer), though benefits are taxed as miscellaneous income.• There are several deductions for pensioners, thus making the majority of pensioners not having to pay taxes.

Contributions to Social Security Programmes• Contribution rules for National Health Insurance (for self-employed people, etc.) are favourable to the elderly

Korea Income Tax• Public pension benefit is tax-free (though the contribution to the scheme is not exempted from income tax base).

Income Tax• Contributions to private pension schemes are exempted from income tax base.

Luxembourg Income Tax• Contributions to the scheme are tax deductible (for both employee and employer), though benefits are taxed as income.

Mexico Income Tax• Employer contributions to the scheme are tax deductible, but employee contributions are not. Benefits are usually not taxed.

Income Tax• Maximum tax free benefits are established in some cases such as savings funds and social welfare

Netherlands Income Tax• Contributions to the scheme are tax deductible (for both employee and employer), though benefits are taxed as income.

New Zealand Income Tax• Benefits of NZ Superannuation (funded by general taxation) are subject to personal income tax.• Tax base increase test (surcharge) for those receiving NZ Superannuation: removed from April 1998

Norway Income Tax• Employer contributions to the scheme are tax deductible, but employee contributions are not. Benefits are taxed as earnedincome. Supplementary benefits to pensioners are not taxable.Contributions to Social Security Programmes• Old-age pensioners only have to pay contributions to the Health Insurance Scheme.

Income Tax• General tax relief rule (income-tested, includes generally the elderly and some other groups)• Special deduction in taxes due to age

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Concessions for Pensioners of Public Schemes Other Concessions for Aged PeoplePoland Income Tax

• Employer contributions to the scheme are tax deductible. (Note: no employee contributions in the current scheme) Benefits are subject to income tax.

Portugal Income Tax• Contributions to the scheme are tax deductible (for both employee and employer), though benefits are taxed income.• Retirement pension income follows a different tax processing from that of income tax in general (more advantageous deduction than other category of income). In terms of tax benefits, they are provided when the debtor is disabled.• The social security general system pensions are exempted from the Individual Tax up to a certain amount. (There are further favourable concessions to invalidity pension.)

Slovak Republic Income Tax• Contributions are tax deductible, and benefits are tax free.

Spain Income Tax• Contributions to the scheme are tax deductible (for both employee and employer), though benefits are usually taxed as earned income.• Disability pensions are tax exempt.

Sweden Income Tax• Contributions to the scheme are tax deductible (for both employee and employer), though benefits are taxed as income.• Special basic deduction for those whose basic pension exceeds SEK 6,000 a year → Maximum amount of deduction is equal to the sum of basic pension and pension supplement, reduced if there are other sources of income such as ATP, employment pensions, etc.• Supplementary benefits to pensioners are not taxable, such as means-tested housing supplement.

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Table 7: Tax concessions for pension benefits and other income/savings (continued

Concessions for Pensioners of Public Schemes Other Concessions for Aged PeopleSwitzerland Income Tax

• Contributions to the public scheme (AVS, 1st pillar) are taxdeductible (for both employee and employer), though benefits aretaxed. This is the same as the private compulsory scheme(occupational provident fund, 2nd pillar).• Supplementary AVS (old-age and survivors’ insurance) and AI (disability insurance) benefits are non-taxable.

Income Tax• A person who have made a saving under the linked individual provident fund (3rdpillar) benefits form preferential tax treatment (reduced rate at the time of thepayment from the funds when the insurance risk occured, and contributionsdeductible from income ).• In some cantons, if retirees are in need of care, they may deduct associatedexpenses from their taxable income (though there are some restrictions).

Turkey Income Tax• Contributions to the scheme are tax deductible (for both employee and employer), and benefits are tax free.

Property Tax• Estate duty (tax) on retirees is exempted when they have only one house.

United Kingdom Income Tax• Employer contributions to the scheme are tax deductible, but employee contributions are not. Benefits are usually taxed as earned income.• Benefits that are more likely to be received by pensioners aresubject to different treatment in the tax system (e.g. Some of thedisability benefits are not taxable).

Income Tax• Higher personal allowance in income tax for the elderly (£5,220-5,440 against £4,045 as a standard), as well as higher married couples allowance (£3,185-3,225 against £1,830 as a standard)• These age-related allowances can be tapered away at the rate of 50% when income rises above £15,600.Contributions to Social Security Programmes• Elderly do not have to pay the National Insurance Contributions after the state pension age.

United States Income Tax• Employer contributions to the scheme are tax deductible, butemployee contributions are not. Benefits are taxed after somefavourable adjustment.• Some social security benefits are non-taxable. (They are not limitedto the elderly, though they are the majority.)

Income Tax• Larger standard deduction for the elderly -- $1,000 for unmarried person, and additional $800 per person aged 65 or older in case of married couple -- However, people rather select itemised specific deductions on various grounds such as home mortgage interest payments and charitable contributions.• There is a relatively small program of special tax credit for very low-income elderly and disabled people (most beneficiaries are under age 65). Property Tax• In many States and local governments, property tax is favourably applied to elderly homeowners.

Source: PENSION FUND ASSOCIATION (1996), Corporate Pension Schemes in the World: Recent Trends and Developments (in Japanese), Social Research Institute, Tokyo;WILLIAM M. MERCER LIMITED (1995), International Benefit Guidelines, William M. Mercer Limited, Brussels; NORDIC SOCIAL STATISTICAL COMMITTEE (1996), SocialSecurity in the Nordic Countries: Scope, Expenditure and Financing 1994, NORSOSCO, Copenhagen; and Country responses to Caring World Questionnaire.

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Table 8: Dependency and support ratios

Elderly dependency ratio 1 Total dependency ratio 2 Needs-weighted support ratio1960 1990 2000 2010 2020 2030 1960 1990 2000 2010 2020 2030 1960 1990 2000 2010 2020 2030

Canada 13.0 16.7 18.2 20.4 28.4 39.1 70.5 47.5 48.3 47.5 56.3 69.0 63.3 69.7 69.1 68.8 64.0 58.4France 18.8 20.8 23.6 24.6 32.3 39.1 61.3 51.1 52.8 51.2 59.6 67.9 64.7 67.5 66.2 66.5 62.2 58.7Germany 16.0 21.7 23.8 30.3 35.4 49.2 47.4 45.3 46.7 50.0 57.3 75.1 70.0 69.2 68.2 65.5 62.2 55.2Italy 13.3 21.6 26.5 31.2 37.5 48.3 47.9 45.5 47.8 51.5 58.8 72.7 70.5 69.1 67.1 64.8 61.4 55.9Japan 9.5 17.1 24.3 33.0 43.0 44.5 56.6 43.5 47.2 56.7 67.8 70.5 68.5 71.1 67.9 62.9 58.0 57.0UnitedKingdom

17.9 24.0 24.4 25.8 31.2 38.7 53.7 52.9 54.0 52.3 58.3 68.0 67.3 66.1 65.6 65.8 62.8 58.7

United States 15.4 19.1 19.0 20.4 27.6 36.8 67.4 51.7 52.0 50.5 57.4 68.0 63.7 67.7 67.6 67.8 63.9 59.1

Autralia 13.9 16.0 16.7 18.6 25.1 33.0 63.2 48.9 48.0 47.6 53.7 62.6 65.3 69.4 69.6 69.2 65.6 61.2Austria 18.6 22.4 23.3 27.7 32.6 44.0 52.1 48.2 49.3 51.3 56.7 71.4 67.7 68.0 67.4 65.7 63.0 57.0Belgium 18.5 22.4 25.1 25.6 31.9 41.1 55.0 49.2 50.9 49.3 57.0 68.9 66.7 67.7 66.5 66.9 63.1 58.1Denmark 16.5 22.7 21.6 24.9 31.7 37.7 55.8 47.9 49.1 51.3 57.9 67.0 67.0 68.0 67.9 66.4 62.8 59.2Finland 11.7 19.7 21.5 24.3 34.7 41.1 60.6 48.4 49.2 50.4 62.7 70.9 66.6 68.6 67.9 66.8 60.9 57.6Greece 12.3 21.2 25.5 28.8 33.3 40.9 52.0 49.6 48.8 51.7 57.1 66.3 69.3 67.9 67.0 65.3 62.7 58.7Iceland 14.1 16.6 17.3 18.1 24.1 32.1 75.0 55.2 52.4 49.5 54.7 63.2 61.8 67.2 67.9 68.7 65.5 61.3Ireland 18.6 18.4 16.7 18.0 21.7 25.3 70.6 61.4 49.8 51.3 52.6 54.5 62.1 64.8 68.9 68.1 66.8 65.3Luxembourg 15.9 19.9 21.9 25.9 33.2 44.2 47.4 44.8 48.4 50.0 58.5 72.7 70.0 69.8 68.1 66.6 62.4 56.6Mexico .. 6.4 7.0 8.0 10.4 14.8 .. 71.6 61.5 50.2 45.5 48.1 .. 64.5 67.5 71.2 72.2 70.1Netherlands 14.7 19.1 20.8 24.2 33.9 45.1 63.9 44.5 47.7 47.5 58.1 73.2 64.9 70.2 68.6 67.8 62.3 56.3New Zealand .. 16.7 17.1 18.9 24.6 30.5 .. 50.9 51.9 50.2 54.7 61.6 .. 68.6 68.1 68.2 65.4 62.1Norway 17.3 25.2 23.9 24.0 31.2 38.7 58.2 54.4 54.1 51.7 58.6 68.3 66.1 65.3 65.7 66.5 62.8 58.7Portugal 12.7 19.5 20.9 22.0 25.3 33.5 59.1 50.7 46.4 46.6 50.0 59.8 66.9 67.9 69.0 68.6 66.7 61.9Spain 12.7 19.8 23.5 25.9 30.7 41.0 55.1 49.3 45.3 46.9 52.7 64.8 68.2 68.3 68.7 67.6 64.6 59.1Sweden 17.8 27.6 26.9 29.1 35.6 39.4 51.8 55.3 57.9 58.5 65.1 70.4 68.0 64.5 63.9 63.2 60.1 58.0Switzerland 15.5 22.0 23.6 29.4 37.8 48.6 51.5 46.1 49.6 53.7 62.4 77.0 68.7 68.8 67.2 64.6 60.4 54.9Turkey 6.7 7.1 8.9 9.4 11.7 16.2 81.4 66.3 57.9 46.9 46.1 48.6 61.6 65.9 68.2 72.0 71.6 69.5

Total OECD 14.9 19.3 20.9 23.5 29.8 37.7 59.0 51.2 50.7 50.6 56.8 66.4 66.5 67.8 67.6 67.0 63.7 59.5OECD Europe 15.3 20.6 22.1 24.7 30.8 39.2 57.9 50.9 50.4 50.6 57.1 67.4 66.7 67.6 67.4 66.7 63.4 59.0

1. Population aged 65 and over as a per cent of working age population.2. Population aged 0-14 and 65 and over as a per cent of working age population.Source: Bos et al. (1994), reproduced in OECD (1996).

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Table 9: Public pension expenditure, 1960 - 2050, selected countries

Actual Projected (c)∆1960-80 (a) ∆1980-93 (b) ∆1995-2010 ∆2010-30 ∆2030-50

Australia 1.6 -0.1 (d) -0.3 1.5 0.7Austria 3.9 1.4 1.4 4.2 0.5Canada 1.6 1.6 0.1 3.7 -0.3Denmark 4.5 0.8 0.8 3.3 0.6Finland 2.7 4.0 0.6 7.1 -0.1France 5.5 2.0 -0.9 3.8 0.9Germany 2.4 -0.3 0.7 4.7 1.0Ireland 2.0 -0.3 -1.0 0.2 0.2Italy 6.5 3.6 1.4 0.8 -1.6 (e)Japan 3.1 1.4 3.0 3.8 3.1Netherlands 7.0 0.7 0.1 5.1 0.2New Zealand 3.3 0.2 (d) -0.7 3.1 1.5Norway 4.8 1.5 0.8 4.9 0.6Sweden 6.5 2.1 0.6 2.6 -0.5United Kingdom 2.3 0.8 0.7 0.3 -1.4United States 2.8 0.4 0.4 2.1 0.4

(a) OECD (1988) Future of Social Protection, Table 7(b) OECD Social Expenditure Data Base(c) Italy: Official projections from Italian authorities (January 1998, taking into account recent pension reforms): Others: OECD (1996) Ageing in

OECD Countries, Table 2.3 (baseline projections)(d) Change between 1980 and 1992(e) Change between 2030 and 2045

Note: Projections are available to 2070 in OECD (1996) which generally show a reduction in anticipated public pension expenditures for mostcountries over the period 2050-2070. They are not included in the above table because they are necessarily more speculative given the time frame.

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Table 10: Future life expectancy at age 60, 1960-19951

Men Women 1960 1970 1980 1990 1995 1960 1970 1980 1990 1995Australia 15.6 15.0 17.1 18.9 19.5 19.4 19.4 21.9 23.2 23.7Austria 15.0 14.9 16.3 17.9 18.7 18.6 18.8 20.3 22.2 22.9Belgium 15.4 15.2 16.3 17.6 18.1 18.7 19.2 20.9 22.5 23.0Canada 16.8 17.0 18.0 18.9 19.9 19.9 21.4 22.9 23.7 24.3Czech Republic 15.1 14.3 14.5 14.7 16.0 18.3 18.0 18.4 19.5 20.4Denmark 17.2 17.3 17.2 17.5 17.6 19.1 20.7 21.7 21.7 21.4Finland 14.4 14.3 15.6 17.1 18.1 17.5 18.3 20.7 21.9 22.9France 15.6 16.2 17.3 19.0 19.7 19.5 20.8 22.4 24.2 24.9Germany 15.5 15.3 16.4 17.8 18.1 18.5 19.1 20.7 22.2 22.5Greece 17.0 17.5 18.2 19.4 19.9 18.9 19.3 20.6 22.3 22.8Hungary 15.6 15.2 14.6 14.7 14.8 17.6 18.2 18.3 19.0 19.5Iceland 18.6 18.6 19.4 20.0 20.5 20.4 21.7 23.0 23.3 23.6Ireland 16.3 15.4 15.5 16.7 17.1 18.3 18.5 18.8 20.8 21.1Italy 16.7 16.7 16.8 18.4 19.0 19.3 20.2 21.2 22.8 23.5Japan 14.8 15.9 18.3 20.0 20.3 17.8 19.3 21.9 24.4 25.3Korea .. .. .. 15.5 15.5 .. .. .. 20.1 20.1Luxembourg 15.9 14.7 15.1 17.8 17.8 18.3 19.0 19.8 22.4 22.7Mexico 16.8 16.9 17.3 18.7 18.9 18.1 18.5 20.2 21.8 22.4Netherlands 17.8 16.9 17.4 17.7 18.1 19.9 20.7 22.5 22.7 22.8New Zealand 16.3 15.6 16.5 18.2 18.8 19.5 19.8 20.8 22.2 22.8Norway 18.0 17.2 17.7 18.2 18.9 20.1 20.9 22.2 22.7 23.3Poland 15.9 15.7 15.2 15.3 15.8 18.7 19.2 19.4 20.0 20.5Portugal 15.9 15.7 17.7 17.2 18.0 18.6 18.8 21.9 21.2 22.0Spain 16.5 16.7 18.4 19.2 19.5 19.2 19.9 22.1 23.5 24.1Sweden 17.3 17.8 17.9 19.1 19.8 19.3 20.9 22.1 23.3 23.9Switzerland 16.2 16.7 17.9 19.1 20.0 19.2 20.4 22.3 23.9 24.5Turkey 14.7 15.0 15.4 15.8 15.8 15.9 16.6 17.3 18.1 18.1United Kingdom 15.3 15.2 15.9 17.6 18.3 19.3 19.9 20.5 21.8 22.4United States 15.8 16.1 17.4 18.5 18.9 19.5 20.7 22.2 22.8 22.91. Data refer to given year, or closest available year.Source: OECD, Health Data 1997.

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Table 11: Labour force indicators, for men and women aged 55-64, 1980 and 1996

M e n 5 5 -6 4 W o m e n 5 5-6 4

co u n tryU n em p lo ym e n t ra tes

L ab o u r fo rc e p a rt ic ip a tio n ra tes

E m p lo ym e n t p o p u la t io n ra tio s

U ne m p loym en t ra te sL ab o u r fo rc e

p a rt ic ip a tio n ra tesE m p lo ym en t

p o p u la t io n ra tio s1 9 8 0 1 9 9 6 1 9 8 0 19 9 6 1 9 8 0 1 9 96 1 9 8 0 1 9 9 6 1 9 8 0 19 9 6 1 9 8 0 1 9 96

A u stra lia 1 ,2 3 .8 9 .8 6 2 .0 6 0 .3 5 9 .6 5 4 .4 2 .9 4 .5 2 0 .5 3 1 .3 1 9 .9 2 9 .9A u str ia .. 5 .1 . . 4 4 .7 .. 4 2 .4 . . 3 .5 . . 1 7 .9 .. 1 7 .3

B elg ium 2 5 .8 4 .7 5 0 .6 3 3 .8 4 7 .7 3 2 .2 4 .1 4 .0 1 2 .3 1 2 .5 1 1 .8 1 2 .0C a na d a 4 .3 7 .8 7 6 .1 5 9 .3 7 2 .8 5 4 .7 5 .1 7 .6 3 3 .7 3 6 .9 3 2 .0 3 4 .1C z e ch R e pu b lic .. 3 .2 . . 5 5 .8 .. 5 4 .0 . . 4 .1 . . 2 3 .2 .. 2 2 .3D en m a rk 2 6 .2 6 .0 6 7 .2 6 2 .1 6 3 .1 5 8 .4 6 .3 6 .3 4 1 .7 3 9 .5 3 9 .1 3 7 .0F in la n d 3 .5 2 4 .6 5 6 .9 4 8 .8 5 5 .0 3 6 .8 6 .0 2 6 .3 4 3 .8 4 4 .2 4 1 .1 3 2 .6F ra nc e 4 .8 8 .6 6 8 .6 4 2 .3 6 5 .3 3 8 .6 6 .2 8 .2 4 0 .1 3 1 .3 3 7 .6 2 8 .8G erm a ny 6 4 .9 1 0 .4 6 7 .3 5 2 .7 6 4 .1 4 7 .2 5 .9 1 3 .1 2 8 .9 2 8 .1 2 7 .2 2 4 .4H ung a ry .. 5 .7 . . 2 8 .0 .. 2 6 .4 . . 4 .0 . . 1 4 .4 .. 1 3 .8Ic e lan d .. 3 .3 . . 9 2 .9 .. 8 9 .9 . . 3 .7 . . 8 0 .4 .. 7 7 .5

Ire lan d 3 6 .5 6 .9 7 7 .9 6 3 .0 7 2 .8 5 8 .7 4 .4 6 .7 2 0 .1 2 3 .4 1 9 .3 2 1 .8Ita ly 2 1 .5 4 .3 5 6 .2 4 4 .0 5 5 .3 4 2 .1 2 .4 4 .3 1 5 .0 1 4 .4 1 4 .6 1 3 .8Ja p a n 3 .7 5 .1 8 5 .4 8 4 .9 8 2 .2 8 0 .6 1 .2 2 .3 4 5 .3 4 8 .8 4 4 .7 4 7 .6K ore a .. 0 .9 . . 7 9 .2 .. 7 8 .5 . . 0 .4 . . 4 9 .6 .. 4 9 .4L u xe m b o urg 2 1 4 .7 0 .0 3 7 .8 3 5 .6 3 7 .8 3 5 .6 3 .6 0 .0 1 4 .7 1 0 .2 1 4 .1 1 0 .2M e xic o .. 2 .3 . . 8 0 .2 .. 7 8 .4 . . 0 .7 . . 2 7 .8 .. 2 7 .6N ethe rlan d s 3 .5 2 .9 6 3 .2 4 3 .1 6 0 .9 3 2 .3 2 .6 4 .0 1 4 .4 2 0 .2 1 4 .0 1 5 .5N ew Z e a la nd .. 4 .3 . . 6 9 .0 .. 6 6 .1 . . 2 .7 . . 4 2 .8 .. 4 1 .7N orw a y 2 ,4 0 .7 2 .5 7 9 .5 7 3 .2 .. 7 1 .4 1 .2 1 .8 4 9 .8 5 9 .2 .. 5 8 .1P o rtuga l 0 .9 5 .5 7 4 .9 6 2 .0 7 4 .2 5 8 .6 1 .0 3 .7 3 2 .1 3 6 .8 3 1 .8 3 5 .5S p a in 6 .1 1 1 .4 7 6 .1 5 6 .3 7 1 .5 4 9 .9 1 .8 1 2 .1 2 1 .3 2 0 .2 2 1 .0 1 7 .8S w e d e n 1 .6 8 .6 7 8 .7 7 2 .2 7 7 .5 6 6 .0 1 .7 6 .5 5 5 .3 6 5 .0 5 4 .4 6 0 .7S w itz er la nd .. 3 .3 . . 7 7 .9 .. 7 5 .3 . . 3 .8 . . 4 2 .1 .. 4 0 .5T urke y .. 2 .3 . . 5 7 .4 .. 5 6 .1 . . 0 .3 . . 2 7 .9 .. 2 7 .8U nited K in gd o m 5 1 0 .6 9 .5 7 0 .0 6 2 .9 6 2 .6 5 7 .0 7 .3 3 .4 3 6 .1 4 0 .2 3 3 .4 3 8 .8U nited S ta tes 3 .4 3 .3 7 2 .1 6 7 .0 6 9 .7 6 4 .7 3 .3 3 .4 4 1 .3 4 9 .6 4 0 .0 4 7 .9

So u r ce : O E C D , L a b o u r F o r ce S ta tis tic s , 1 97 5 -1 9 9 6 , P a rt I II , fo rthc o m in g .N o tes :1 . F o r u ne m p lo ym e n t, d a ta fo r the a ge g ro u p 5 5 to 6 4 re fer s to 5 5 an d o ve r2 . 1 9 8 0 d a ta re fer s to 19 8 33 . 1 9 8 0 d a ta re fer s to 19 7 94 . U ne m p loym en t ra te fo r 1 9 8 0 re fe rs to 6 0 ye ar a nd o ve r5 . 1 9 8 3 d ata re fe r s to 1 9 8 46 . 1 9 9 6 d ata re fe r s to 1 9 9 57 . " .." = n a

61

Table 12: Wealth to income ratios, household with head around 55 and 67

Singles55 years, Income Quintile 67 years, Income Quintile

All 1 2 3 4 5 All 1 2 3 4 5

Australia 9.3 31.7 4.6 8.8 7.6 9.4 15.0 132.5 7.6 13.2 11.6 15.6France1 8.0 12.1 7.6 7.7 7.7 7.9 7.3 6.6 10.5 7.6 7.0 6.7

Italy 5.9 5.8 5.9 5.4 5.5 6.3 5.8 4.4 4.3 5.3 5.4 6.9Japan 11.0 41.5 11.0 12.3 10.5 4.5 22.1 20.1 19.9 31.5 31.4 15.1

Germany 3.4 0.8 3.9 2.9 3.5 4.0 4.1 2.9 3.9 2.9 4.0 5.2Netherlands 2.4 3.5 2.4 2.1 1.7 2.7 2.8 4.2 2.3 2.5 1.9 3.4

Sweden 2.6 2.2 1.0 2.8 1.9 3.8 3.5 3.8 2.6 1.8 2.7 5.2United Kingdom 5.5 6.2 9.0 5.8 4.5 4.9 7.7 5.3 5.8 8.4 8.5 8.2

United States1 4.7 4.5 4.8 3.9 4.2 5.1 8.6 5.1 6.3 8.6 9.9 9.0

Couples55 years, Income Quintile 67 years, Income Quintile

All 1 2 3 4 5 All 1 2 3 4 5

Australia 8.3 24.0 9.8 8.1 7.0 6.9 13.4 15.3 11.3 12.1 12.1 15.0France1 7.0 8.9 7.3 6.2 7.1 7.1 11.6 11.0 9.2 9.3 7.7 15.8

Italy 5.4 7.2 6.4 5.1 5.5 5.1 6.9 6.3 5.8 6.2 6.3 7.6Japan 8.0 10.6 7.8 7.2 8.9 7.3 15.6 20.6 17.3 15.2 14.9 14.6

Germany 4.3 3.8 4.3 4.2 4.1 4.7 4.7 3.4 4.1 4.3 4.8 5.4Netherlands 3.0 3.4 2.6 2.6 2.8 3.3 3.9 5.2 2.2 2.5 3.9 4.9

Sweden 3.0 7.9 2.1 2.2 2.3 2.6 3.4 4.5 2.8 2.5 3.3 3.9United Kingdom 6.7 13.1 7.5 6.9 6.7 5.1 7.8 6.8 6.8 8.4 9.2 7.5

United States1 4.8 6.9 5.7 4.4 4.4 4.7 7.8 9.0 8.1 8.9 9.0 6.7

1. As a percentage of gross income.

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Table 13: Current retirement income concerns and processes

Country Financialviability ofpublic pensionsystem

Loweffectiveage ofretirement

Other concerns/Issues Recent reformsundertakenand when

Current processes established

Australia Yes • Adequacy of public benefits• Complexity of pension arrangements

1991-98 (-2025)

Belgium Yes Yes • Regulating public pension schemes• Adequacy of public benefits, minimum entitlements

199519961997 (-2005)

Canada Yes 1998

Czech Republic Yes Yes • Adequate level of pensions• Consistency of pension arrangements

1990-921996 (-2007)

Denmark Yes • Want more effective labour market incentives for older workers

Finland Modest concern Yes • High rate of unemployment for older people• Improved pension coverage of workforce

1993-961997

France 1993 (-2013)

Germany Yes Yes • Promote company pensionsIntergenerational equity

1992 (-2020)1997 (-2012)

63

Table 13: Current retirement income concerns and processes (continued)

Country Financial viabilityof public pensionsystem

Low effectiveage ofretirement



Greece Yes Yes • Intergenerational equity• Adequacy of minimumentitlements• Evasion• Coverage of immigrants

1987 (farmers)1990-921996

“Social dialogue” on the future of socialinsurance, in particular pensions (1997-)

Hungary Yes Yes • Adequacy of benefits• Improved work incentives with pension system.

Early 90s1998/9

Ireland Yes • Adequacy of basic pension• Supplementary pension coverage

1988 (self-employed);1990/91 (part-timeemployee); 1995(public servants)

National Pension Policy Initiative launched in1996. Report to be published, May 1998

Italy Yes Yes • Improved work incentives with pension system• Greater equity of systemsacross industries andindividuals

• Labour market outcomesmay lead to inadequatepension accumulation

19951997 (-2008)

Japan Yes • Intergenerational equity• Worsening overall fiscal deficit• Extension of private pensions

1994 • National Pension Council, advisory organisation to Minister for Health and Welfare, started extensive discussion to consider fundamental pension reform.

Korea Yes Yes • Desire to extend coverage,including urban self-employed• Reforming benefit structure(amount, retirement age,etc.) for the long-termfinancial soundness

• National Pension Reform Committee wasoperating during 1997. Government is revisingthe current law.

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Luxembourg Yes • Greater convergence between pension schemes

1991

Mexico • Setting upper limit (inrelation to pension income) forimposing income tax

Netherlands Yes Yes • Affordable private pension funds• More freedom of choice for individuals and increase coverage rates for private pensions

New Zealand Yes Yes 19901991 (-2001)

• Current review of retirement income policies with a focus on the financial sustainability of the system• Referendum on compulsory retirement savings scheme (not supported: Oct.1997).

Norway Yes Yes • Intergenerational equity 1997 • Inter-Ministerial working group to evaluate greater retirement flexibility, committee to investigate alternative early retirement schemes• Government commission investigating alternative financing methods, to report July 1998.

Poland Yes Yes • Highly redistribute pension system

1995/1996 • Legislation for major reform being developed, anticipate it to operate from 1999 (phased in over 20-30 years)

65






Portugal Yes 1994 • Retirement pension issues: an important aspect of work of the Social Security White Book Committee

Slovak Republic • Improved work incentives with pension system• Extension of private pensions

199319961998

Spain Yes Yes • Maintain benefit adequacy• Improved work incentives with pension system

1997 (-2002)

Sweden Yes • Overall concern that fiscal consolidation has impacted harshly on older people

1990199319951998

• Legislation on reformed pension system due to be operational January 1999 (phased in over 20-25 years) (The first payments will bedone in 2001)

Switzerland Yes • Exclusion of part-time workers from pension coverage of the compulsory occupational provident fund (2nd pillar)

1997 • Inter-Ministerial working group have analysedthe social and financial consequences ofextending or reducing benefits

Turkey Yes Yes • Non-collection of social security premiums because ofnon-registration to the schemes.

1998 (planned) • Current studies on the social security bill

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United Kingdom • Adequacy of income, rising income inequality• Decline in quality and coverage of supplementary pensions• Want to develop second-tier pension for those not covered by employer schemes, including carers

19861995

• Government leading a wide-ranging pensions review

United States Yes • Encourage private pensions 1996 • Social Security Advisory Council, officially appointed body of outside experts, recently reported findings

Source: Country responses to “Caring World” synthesis questionnaire.

67

Table 14: Directions of recent pension reforms in Member countries

↑ pensionableage

Promotinglongeremployment

Changed benefitrate

↑ requiredcontributionperiod

↑ contributionrate

convergenceof schemes

greater reliance onfundedschemes

promoting privateschemes

Others

Australia O (W)* Equalisingwith the agefor men (1)

1997DeferredPension BonusPlan

1997Pension ratenow linked tocommunityliving standards

1992• Establishment of compulsory private pension (Superannuation Guarantee) DC, full-funded, tax con cession. Voluntary schemes still remain,generally with higher benefits.1996• Improved supervision, regulation of private funds1997• Retirement Saving Accounts or other supplementary measures

Austria Reduced accessto earlyretirementoption

Harmonisation ofscheme for publicemployees withsystem for otherworkers

Belgium O (W)* Equalisingwith the agefor men

1997↑ Required no.of working yrsfor earlyretirement

1996↓ Revaluation coefficient for the benefit

Canada 1987Flexibleretirement ageto 70

1997Reduction ofsome benefitsrelated todisability

1997To 9.9% in2003 and heldsteady (2) (3)

1996New basicpension withmeans test,by 2001

1997funded portion ↑(2 yrs → 5 yrs)

Tax concessions,available withinlimits

1997More aggressiveinvestment policywith pension reservesto generate higherearnings

Czech Republic O (M,W)* Differencebetween menand womenis shortened.

Price indexa-tionof payments,capacity foradjustment inline with livingstandards

Consideringincrease

Convergence ofpayment ratesavailable throughdifferent schemes

System of voluntary supplementarypension provision, based on employercontribution, no tax relief.

Denmark Yes

(3)

Compulsory occupational pension (second-tier) is managed by DCschemes. Coverage rate of that program increased from about 1/3(1987) to about 4/5 (1993).

1994Pensioners taxed inthe same way as othertaxpayers

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Table 14: Directions of recent pension reforms in Member countries (continued)↑ pensionableage


Changed benefitrate




greater reliance onfunded schemes


Others

Finland Retirement ageraised from 63to 65

1997Raising thelower age limitfor earlyretirementbenefit (from 55to 58 yrs).Lower level ofearly retirementbenefit.

1993-1996Reduced benefit,changedindexationarrangements,basic pensionmeans-tested.

Gradual raiseof thecontributionrate until2030s (3)

Gradualimplementation ofprivate sectorpension scheme

1997Financing andsolvency reform tostrengthen solvencyof funds and allownew investmentstrategies

France 1994Base period forbenefitcalculation from10 → 25 years(by 2008/2013)

199437.5 yrs →40 yrs by2003

Germany O (W)* Equalisingwith the agefor men* Other excep-tions are alsoamended.

1992Net-incomeindexation (4)1997↓target repla-cement rate(70% → 64% )

( in 30 yrs)

(3)

• Corporate schemes are promoted with legislation, dating back to 1974 and recent reforms.• Wanting to further expand private schemes

Attempted to sharethe burden of ageingequally betweenpensions andcontributors

Greece O (W)* Equalisingwith the agefor men

Benefits moreproportional tocontributions

(5)

1992Elimination ofthe specialtreatment on thebonus salary

* calculationrate: 80%→60% (5)

199013.5 yrs → 15years

• Major increasein 1992• Statecontributionsequal to 10% ofearnings (5)

* Pensionable ageof special schemesis eqalised withIKA (2001 (W)and 2007(M))* Uniform contri-butions andreplacement rates(5)

1996income-tested pensionsupplement

Farmers scheme toprovide contri-bution-related benefits inplace of current flat-rate non-contributoypensions

(a)

69

Table 14: Directions of recent pension reforms in Member countries (continued)

↑ pensionableage

Promoting longeremployment

Changed benefitrate






Others

Hungary O(M,W)* Equalisingthe ages ofmen andwomen

Raising thelower age limitand minimumno. ofcontributionyrs for earlyretirement1997Replace LabourMarket Fund withless generousscheme

1998Higher benefitsavailable tolong contri-butors andhigh earners2001Less generousindexationarrangement2013Pensionscalculated onthe basis ofgross earnings

1998A new mixed public-private system.3/4 of the system is based on traditional PAYG system, with 1/4 is based on the newlyestablished funded portion managed by private sector.Tax allowances encourage voluntary savings in supplementary pension funds.The new system is mandatory for new labour market entrants; existing workforce canelect to switch to the new system.

Want to keep PAYGscheme deficit to below1% of GDP

1998Pensions became taxableincome.

Ireland Pension rateincreased tomore than adjustfor prices inperiods ofeconomicgrowth

Majority ofNationalPensionsBoard in FinalReport (1993)recommendedagainst secondtier PAYGpensions.

January 1991New regulatory systemfor occupational pensionsintroduced to safeguardpension rights

Italy O (M,W)* 5 yrdifferenceremains betweenmenand women• New system

→(6)

Yes(6)

Reduction ofbenefits

Forsenioritypension andold-agepension

Yes

(3)

1995Greater equityfor workers indifferentindustries

1995Complementaryfunded scheme, DCscheme

Yes Surviviors pension nowmeans tested1995Harmonisation ofregulations governingdifferent pension systems

Japan O (M,W)* Partialpension isalso introduced.

1994Net-incomeindexation (4)

1994Introduction ofcontributionimposed onbonuses (3)

Private pension is promoted, including discussion forintroduction of DC schemes, etc.

(a)

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↑ pensionableage

Promoting longeremployment

Changed benefitrate






Others

Korea O (M,W) Replacementrate: 70%→55% on thebasis of 40 yrs’contributions

15 years to10 years

Gradual raise by2025

(3)

1995Individual privatepension introduced1998 Firms can have anoption to takepension scheme orseverance payment .

Luxembourg Pursuingconvergencebetween generalscheme, specialpublic sectorscheme andrailway scheme

Mexico 1997A new mandatory private pension system (DC, funded)• The old (public) system still remains and the insured persons can enrol either of them.• Voluntary deposits can be made to the individual account of the workers.

Netherlands

(3)

* Promotion of private pension• Wishes to raise the coverage rate of private schemes• Transition from PAYG to funded schemes supported bygovernment• Making the scheme more affordable by changing final-salarypension to average salary pension

• Introduction of theOAP Savings Fund• Wants to encouragethe workers to voluntarycontribute to buildingup the pension rightduring “care-leave”

New Zealand O (M, W)* To 65

1990Link to 80%average wage(for couple)was abolished.Relative valuenow below70%

Promotion of private provision(by public education. no tax concession introduced.)Introduction of compulsory private pension was proposed, butdenied in the referendum (Sept. 97)

71


↑ pensionableage


Changed benefitrate






Others

Norway 1997Reduced level ofdeductionfrom pensionpayable due toincome fromwork (67-70)

1992Reduced benefitrate,reduced rateof accumula-tion of pensionentitlements foreach yr ofwork

Under discussion * Increased publicrevenues frompetroleum industry isallocated to the StatePetroleum Fund.

Poland O (W)* Equalisingwith the agefor men

Raising thelower age limitfor earlyretirement(planned)

19991st pillar PAYG, DC (state subsidy for subsistence)2nd pillar: funded, universal coverage3rd pillar: private pension schemes

1991Method of calculationwas changed to countin only half of theportion the period oftemporary withdrawalfrom labour force forthe purpose such as ofparental leave, sickleave, etc.

Portugal O (W)* Equalisingwith the agefor men

1994Reduced pensionaccumulationrate by 10%

199410→15yrscontribution toestablishpension rights

(3)

Possible but not soprevalent now

Slovak Republic (3)

Related legislationwas passed in1996.

1995DB schemeintroduced with newtax system

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↑ pensionableage


Changed benefitrate






Others

Spain Phasing outprevious schemewithlower retirementage

1997Automatic priceindexation ofbenefitsStronger linkageof benefit ratesto contributoryyrs.

Sweden 1999Abolish upperlimit fordeferredretirement,actuarial pensionincrease

1993↓ benefitamountReducedindexationarrangements1999Transfer from abenefit-definedsystem to acontribution-defined system(“life-income’principle)

1990Payroll tax foremployers19951% contribu-tion foremployee (3)

1999Introductionof DC scheme

19992.5% out of18,5% contri-bution will beallocated tofunded system.

1990 phase-outsurvivors’ pension

Individual financialfunds in reformedscheme will grow asbuffer fund declines.

(b)

Switzerland O (W)* Difference ofthe agebetween menand women isshortened.

1997Abolish somespecial benefits

1997• Those caring forchildren and closefamily relativesreceive notionalincome at the time ofcalculating pensions.* The rate of statesubsidy has beenadjusted in recentyears.

Turkey Raising thepensionable age

Raising theminimum no. ofcontributionyrs for earlyretirement(considered)

Removeamnesty forunpaidcontributions

Raising thecontribution rate(considered)Statecontributions

Consideringuniversal scheme

Consideringencouraging greaterprivate pensions

(a)

73


↑ pensionableage


Changed benefitrate






Others

United Kingdom O (W)* Equalisingwith the agefor men (from2010)

1986Flexibleretirement ageto 70(“PersonalPension”)

1986Reduction ofvalue of publicearnings-relatedscheme(calculationbasis: 20 yrs→ all theworking yrs;replacementrate: 25% →20%)

* Permitting“contract-out” ofstate schemes withprivate schemes

• Tax concessions• Introduction of Personal Pensions• The 1995 Act also enhanced the regulation of private schemes

United States O (M,W)* To 67

Legislativerequirement(ERISA) that allpensioncoverage shouldbe non-discriminatorywithin aworkplace whereit is provided

DC scheme istax-favouredfor corporatepension

Tax concessions Pension trust fundnow in surplus,revenues lower thanpayments from 2011and into debt in 2030.

Source: Country responses for “Caring World” synthesis, and Social Security Programs Throughout the World - 1997 (Social Security Administration, US).* Year of the reform indicates that of the implementation unless otherwise indicated.* Breakdown of “others” : (a) reform for more efficient management, such as introduction of “Basic Pension Number” in Japan (1997)

(b) closer linkage between work and benefit, such as introduction of wage indexation in Sweden (1999)* “M”: men, “W”: women, “DC”: defined-contribution, “PAYG”: pay-as-you-go,(1) Australia’s recently established Superannuation Guarantee (compulsory private pension) also envisions increase of the age of eligibility from 55 to 60.(2) The original plan was to increase to 14.2% by 2030.(3) Some countries raised the contribution rate from 1995 to 1997.(4) Germany and Japan have introduced a scheme of “net-income indexation.” The base of this adjustment is a disposable income, the remain after subtracting taxes and social security contributions from

gross income.(5) Those measures are only applied to those workers entering the labour market after 1993.(6) A new system in Italy (introduced in 1995) has a flexible retirement age (57-65) and does not have an early-retirement arrangement. For more details on pensionable age, see Table 6.10.

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Chart: Countries taking policy action in retirement incomes, as a proportion of countries surveyed

48.3%

20.7%

44.8%

41.4%

55.2%

24.1%

58.6%

24.1%

41.4%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

Reducedgenerosity of

publicpensions

Increasedgenerosity of

publicpensions

Increase instatutory

pensionableage

Reductions/removal of

earlyretirement

Incentives towork longer

Improvedfunding of

publicpensions

Promotingprivate

pensions

Expandedcoverage/greater

convergence

Option forpart-pension

in phasedretirement

Note: Excludes policies "still under consideration"

(*) Includes Italy which is moving to restrict this policy and Sweden which has plans to remove it.

(*)

75

Table 15: Pensionable age and early/deferred retirement

Pensionable age (1)

Changes toPensionable age

Provision onearly retirement (2)

Changes to earlyretirement provisions

Provision on deferredretirement (2)

Changes to deferredretirement provisions

Effectiveretirement age

Note

Australia 65 (M)61 (W) 61 → 65 (W)

(1997) (2013)

(c): Mature Age Allowance (MAA, introduced in 1994)60 - 64 (M)60 (W)

• MAA now provides lower benefit entitlements rather than pension entitlements.• Phased increase in age at which makes possible an access to tax-assisted private pensions, from current age 55 up to age 60 by 2025.

• Deferred Pension Bonus Plan (lump- sum) ... (proposed) 65-70 (M) 61-66 (W)• Can continue contributing to private pensions up to age 70 if employed at least 10 hours a week

Eligibility forService Pension(for veterans) is 5years earlier thanAge Pension.

Austria 65 (M)60 (W)

(a): 60 -64 (M) 55 - 59 (W)Needs 35 years insurance,meet means test

(a)

Belgium 65 (M)61 (W)

1997 61 → 65 (W)(1997) (2009)

(a): 60 -64 (M) 60 (W)Needs 20 working years

1997No. of working yrs will be ↑from 20 (1997) to 35 years(2005)

Pension systemallows continuedemployment withearnings limits

General principlethat people shouldstop work atretirement age

Canada 65 (a): 60-64(for earnings-related pension, introduced in 1987)Needs substantially ceased employmentIntroduction of partial pension is being considered.

(a): 65-70(for earnings-related scheme, introduced in1987)

62 (median,1995. fromabout 65 in1976)

Pensioable age forSpousesAllowance Benefitis 60.Change ofpensionable age(65→67) wasproposed butnot supported in1997.

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Table 15: Pensionable age and early/deferred retirement (continued)

Pensionable age (1)







Note

Czech Republic 60 (M)53-57(W)

1996 60 →62 (M)53-57→57-61(W)(1996) (2007)

(a): from 3 years beforepensionable age with 25 yrsinsurance(c): within 2 yrs of retirementwith 25 yrs insurance and 180days unemployment,temporary benefit reductionuntil age 60

19964 years before(2001) → 5 years before (2006)

(a)

Denmark 67 (b): 60-66Needs contribution of over 10yrs in last 20 yrsNeeds to continue working aspart-time

From July 1998:Local authorities required tofirst try rehabilitationtraining, and otherreintegration measures whichprove unsuccessful before anearly retirement pension isgranted

61.5 (Sep.1997,from about 65in 1977)

Finland 65 (a): 60-64(Early-retirement pension)(b): 58-64(Part-time pension)(c): 53-60(unemployment dailyallowance)(c): 60-64(unemployment pension)

1997Lower age limit forunemployment dailyallowance became from53 to 55

(c): 65- (no upper limit)

1% pension bonusfor each monthdeferred after age65 for public sectorworkers

France 60 Under certainconditions, part-time work ispermitted after thepensionable age(since 1988)

77


Pensionable age (1)







Note

Germany 65 (M)60 (W)

1992 and 199660 → 65 (W)(2000)(2004)

(a):Needs partial cessation ofemployment

From 2012:Lower limit: 62 yearsNeeds 35 yearsinsurance

(c):0.5% bonus foreach monthworking beyondage 65

There are someexceptions forpensionable age, 63for long-terminsured and 60 forseverelyhandicapped. Theyare also graduallyincreased to 65 and63 respectively.

Greece 65 (M)60 (W)

60-65 (W)for those enteringthe labour marketafter 1993

(a): 60-64 (M) 55-59 (W)Needs 4500 days of insurance* Full seniority pension isgranted at age of 58 for thosewith 35 years of contributions.

There are manyexceptions ofpensionable age.

(3)

Hungary 60 (M)56 (W)

1997 60 → 62 (M)(1997) (2001) 56 → 62 (W)(1997) (2009)

• Employer-based scheme available within five yrs of retirement (employers bear the full cost)• Labour Market Fund for those exhausted UB and within 3 yrs of retirement• Those with 40 yrs service get full pension

• Access to early retirement now from age 60 (M) , 55(W)• Value of Labour Market Fund payment reduced (by around 20%) to flat- rate benefit

(c):3.6% annual bonus forworking beyond age 62

1997With employer-based earlyretirement scheme,employers will berequired toprovide full advancefundingrather than currentinstalmentpayment.

Iceland 67 (a): 65-66(for corporate pension)

Ireland 65(retirement)66(old-age)

(c): 55-64 or -65Needs to be unemployed for 15or more months,means-tested, payment equal tolong-term rate of UA

Special one-off earlyretirement scheme for civilservants introduced in late1980s no longer available

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Table 15: Pensionable age and early/deferred retirement (continued)Pensionable age (1)







Note

Italy (Old system)63 (men)58(women)

(New system)57-65

(3)

(Old system)63 →65 (M) 58 →60 (W)(1997)(2000)

(3)

“Seniority pension”(within theold system; used to be providedwith 35 years of contributionand with no age requirements) isprovided with 35 years ofcontributions and agerequirement of 52 (1997).

Required contributionperiod for “seniority pension”becomes 40years in 2008, which is thesame as that of the new systemwhen age requirement isexempted.

(3)

(a): 64-65 (M) 59-65 (W)

Want to abolishpublicsubsidies for earlyretirement

Japan 60 (M)59 (W)

1994 60 → 65(2001)(2013) (M)(2006)(2018) (W)

(a): 60-64 (basic pension)

* Earnings-related pension: (4)

(a): 65-70 Pensionable age forBasic Pension is 65years old.As to earnings-related pension,pensionable age forseamen and minersis 56.

Korea 60 60→65 (by 2033) (a): 55-59Needs 20 working yearsLose 5% benefits for eachyr below age 60

When retirement isdeferred to 65, basicpension is providedwith reduced amount of50% at 60, with 10%increases for a yearmore.

Luxembourg 65 57 -.Needs 40 yrscontributions; or age 60 if40 yrs effective coverage

--- (a): 65-68 Not a policy priority Pensionable age fornon-contributory plan is60.

Mexico 65 (a): 60-64The early retirementbenefit was intended forunemployment situations.

Netherlands 65 Only private pension has thosearrangements based oncollective agreements

Not a policy priority

79


Pensionable age (1)







Note

New Zealand 62 62 → 65(1997)(2001)

No. Only transitionalmeasures for those closeto new increasedretirement age expires in2003.Relaxed work test forunemploymentbeneficiaries aged 55 andare unemployed for atleast 6 months

Mandatoryretirement isillegal.

Norway 67 (a): 64-66 Lower limit becomes 62 inMar. 1998.

(a): 67-70 1997* Those workingbetween these ages can alsoretain more of theirpension, up to setearnings limits.

About 60

(Aug.1997)

Easier access toearlyretirement contrarytoGovernmentobjectives

Poland 65 (M)60 (W)

It is planned toincreasepensionable age forwomen to 65.

Early retirement generallyavailable 5 yrs beforeretirement age. Noactuarial reduction ofbenefit.

It is planned to make the lower limit of early retirement at 62.

59 (M)55 (W)

(1996)

Portugal 65 (M)64(W)

62 → 65(1993)(1999)

Early retirement at age 60 if involuntary unemployedover age 55. Pension payable at 60 if UB depleted.

Pensionable age forminers (50),seamen, fishermen(55).

Slovak Republic 60 (M)53-57 (W)

2 year before thepensionable age (* withoutactuarial reduction ifretirement due toretrenchment)

A scheme of allowingearly retirement 3 yearsbefore pensionable age,with actuarial reductionof the benefit, is beingconsidered.

(c):Legal regulationsallow laterretirement.1% bonus for extra3 months work

Pensionable age forworkersin unhealthy orarduous workis 55 - 58.

AWP 3.4

80

Table 15: Pensionable Age and Early/Deferred Retirement (continued)

Pensionable age (1)







Note

Spain 65 Previous pensionsystem whichhad retirementage of 60 beingphased our (nonew entrantsafter 1967)

(a):60 - 64• Full benefit when the age is 64 or more and there is a replacing worker who has been unemployed.• Phased retirement at 62- 64 with part-time work and new recruitment of part-time worker

(a) 63.1

(Aug.1997)

Can retire earlier ifwork inharsh, dangerousjobsLittle incentive towork morethan 35 yrs asalready get100% pension

Sweden 65 (a): 60-64(b): 61-64 (with reduced working hours)Reduction of 0.5% ofbenefits for every monthprior to 65

1999Pensions available fromage 61 with actuarialadjustment

(c): 65-70Employer’s consent isrequired.Bonus of 0.7% foreach monthdeferred

A measure to ensurethe right to work until 67is being considered.1999Plan to remove upperage limit from pensionbonus and to introduceactuarial adjustment

Switzerland 65 (M)62 (W)

62 → 64 (W)(1997) (2005)

(a): Up to 2 yrs before the pensionable age (first-tier pension) * As to the second-tier compulsory private pension, the rules andregulations of the insurancecompany determine whetherthere can be early or lateretirement and on whatconditions (but the federalauthorities will not accept thiswhen it is more than five yearsunder or over the legalretirement age).

Early retirement linked toincrease of retirement age (1stpillar)

(a): 65-70 (M) 62-67 (W)

In case of the privatecompulsory scheme(2nd pillar) ,pensioners may alsoremain inemployment inorder toaccumulatemaximum pension

There is anotherearly retirementscheme withinunemploymentinsurance: itprovides supportingbenefit to theemployers if theyfill the job of thepre-pensioner withsomeoneunemployed for atlease 6 months.

81

Table 15: Pensionable Age and Early/Deferred Retirement (continued)

Pensionable age (1)







Note

Turkey 55(M)50(W)

(a): The benefit is providedfrom the age of 38(W) or 43(M) only if the requirements of20 (W) or 25 (M) workingyears and 5000 days ofcontribution are fulfilled.

Limiting of earlyretirement by increasingworking years is beingconsidered.

Pensionable agevariesaccording to theschemes,e.g. age 50 forundergroundminers

United Kingdom 65 (M)60 (W)

1988 60 → 65 (W)(2010)(2020)

(a): 50-64 (M); 50-59 (W)

(“Personal Pension” introduced in the 1986 Act, alsoavailable up to age 75)

(a): 65-70 (M); 61-70 (W) (state schemes)

* From 2010 can defer indefinitely

United States 65 1983 65 → 67(2002) (2027)

(a): 62 -64Reduction of benefits 5/9of 1% every month prior toage 65

• Mandatoryretirement is illegal.• Funds withdrawnprior to age 59 and 1/2 aresubject to a taxpenalty.

Source: Implementing the OECD Jobs Strategy: Member countries’ experience (OECD, 1997), Social Security Programs Throughout the World - 1997 (Social Security Administration,US) and country responses for “Caring World” synthesis questionnaire.* (M): men, (W): women, “UB”: unemployment benefit,* Subsequent changes of the ages of eligibility in case of early/deferred retirement, corresponding to the change of pensionable age, are not explicitly indicated in the column.* As to the early retirement arrangement, the benefit in the form of usual disability pension is not included in the column, though in come countries it serves as de facto early retirement pension.* In some countries, workers in certain industries (miner, seamen, etc.) or mothers of young children have earlier retirement age or special option for early retirement.(1) Standard pensionable age is as of July 1997.(2) In the column for provisions on early/deferred retirement, (a) is for actuarial adjustment of benefit, (b) for partial pension, and (c) for other schemes such as unemployment benefits.(3) Lower

pensionable age of special schemes is to be gradually equalised to that of IKA: 65 (M) from 2007, 60 (W) from 2001. In addition, in 1990, a minimum pensionable age was introduced in the publicsector (for those hired from 1983).

(3) A new system in Italy (introduced in 1995) has a flexible retirement age (57-65). This system does not have an early-retirement arrangement.(4) Pensionable age for Japanese system needs more elaboration. Although pensionable age for the basic pension is 65 years old, the earnings-related pension has provided both basic and earnings-related

portions of the benefit to the elderly of age between 60 and 64, on the conditions of retirement or reduction of income to a certain extent. In the 1994 Reform, it was decided that this “special provision”by earnings-related pension from 60 would be abolished. This means standard pensionable age would increase to 65. Instead, a partial pension benefit is decided to be introduced which covers onlyearnings-related portion of the benefit and payable from 60. The replacement of the “special provision” by the partial pension takes place gradually during the period of 2001-2013 (M) and 2006-2018(W). The basic pension benefit is still payable from 60 with actuarial reduction, on top of the partial pension benefit.

AWP 3.4

82

Table 16: Pensions and employment: linkage in selected countries

* Before standard pensionable ageDenmark • Part-pension available to employees and self-employed aged between 60 to 66

(Introduced in January 1987). Pension provides a supplement to pay, if meet conditionsregarding current and prior labour market attachment as well as a reduction in workinghours.

Germany • Some reforms in August 1996 which improved the opportunity for gradual transitionfrom work to retirement. The reforms encouraged part-time work by older people overthe age of 55 years who cut their contractual hours by half. An employer who tops upearnings from part-time work by 20% and pays contributions to pension insurance onthe basis of 90% of the full time wage has. These additional costs reimbursed if theemployer recruits someone else to fill the job vacated.

Italy • Rules for concurrently drawing a pension and working although it is moving to limitthis opportunity.

Japan • Reduced pension to those aged 60-64 who are phasing down their work attachment, inthe same type of job or with a different job.

Luxembourg • Permits half salary and half pension to be received.

Portugal • No restriction on employment activity for those in receipt of a pension.

Slovak Republic • Draft legislation which proposes that people not be able to work while drawingan old-age pension.

Sweden • Possibility for early retirement from 61 years. This implies life-long reduction ofpension by 0.5% per month of retirement age below 65 years.

* After standard pensionable age

Belgium • Allows retirees to take jobs while still drawing pensions as long as earnings arebelow set national limits (with the limits adjusted according to the presence offamily dependants).

France • Graduated pension scheme since 1988, available to wage earners, craftsman,industrialists and traders who are at least 60 years of age, qualified for a full pension onbasis of contributions and hold a part-time job. They can combine a fraction of theirpension with income from part-time work.

Greece • Pension reduced in proportion to earnings if they exceed a limit. Currentarrangements under review.

Poland • Allows a person granted a retirement pension to continue working but theremay be partial or total suspension of benefits depending on the level of earnings.

Sweden • Postponed retirement possible until the age of 70. This implies life-long increase ofpension by 0.7% per month of retiring age over 65 years.

Turkey • Once pensioners start working, retirement pensions are not provided and they have tocontinue paying contributions. However, the benefits are maintained if they request forit and pay the contributions to support social security (rate: 24%) (for the scheme foremployees) or if they enroll in other schemes (for the scheme for national civilservants).

United States • Liberalised the earnings test in 1996 to encourage pensioners to work more.Those aged 62-64 can earn US$8,460 (in 1997) before they face 50% pension taper,those aged 65-69 can earn US$13,500 before they face a 33 1/3 % pension taper andthose aged 70+ have no limit on earnings.

83

Examples of international social security agreements for pension totalisation

(1) Bilateral Agreements

Items usually included:

a) Elimination of dual coverage -- To exempt foreign workers (temporarily “detached” from their home country) from paying contributions to the country of current residence (maximum period of the “detachment” is specified in the agreement, for example, five years in the majority of agreements where the US is involved) b) “Totalisation” of the benefit --- To allow people who do not fall under the above a) to count the coverage year in one country in claiming for the benefit in the other. Partial benefit can be paid when the combined year of coverage meets the requirements. This also means that (a part of) the accrued pension benefit in one country can be portable to the other.

Example in some countries:

Australia: Austria, Canada, Cyprus, Ireland, Italy, Malta, New Zealand, the Netherlands, Portugal, Spain and the UK

Canada: Antigua and Barbuda, Australia, Austria, Barbados, Belgium, Cyprus, Denmark, Dominica, Finland, France, Germany, Greece, Guernsey, Iceland, Ireland, Italy, Jamaica, Jersey, Luxembourg, Malta, the Netherlands, New Zealand, Norway, the Philippines, Portugal, St.Kitts and Nevis, St.Lucia, Spain, Sweden, Switzerland and the US.

The US : Italy, Germany, Switzerland, Belgium, Norway, Canada, the UK, Sweden, Spain, France, Portugal, the Netherlands, Austria, Finland, Ireland, Luxembourg, Greece

* Agreements between Australia and New Zealand/the UK are different from others: they have “host-country” agreements, which means that the country of residence takes a charge of the social security for the foreign labour. Significantly, those style of agreements provides very limited portability of the benefits, which has been improved by recent measures such as unilateral action of allowing their portability.

(2) Multilateral Agreements

a) EC Regulation 1408/71(substantive) and 574/72 (procedure), backed up by Article 51 of the EC Treaty. Aggregation of (the period of) contributions is enabled in the regulations.

* This agreement is enforced in the European Economic Area (EEA), which includes: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Iceland, Italy, Liechtenstein, Luxembourg, the Netherlands, Norway, Portugal, Ireland, Spain, Sweden, the UK * Significantly, this agreement is only applied to European Union citizens, not to people with other countries citizenship.

retirement income systems: the reform oecd countries · 2016. 7. 7. · retirement income systems:...

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